Be Wary Of Shandong Zhonglu Oceanic Fisheries (SZSE:200992) And Its Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Shandong Zhonglu Oceanic Fisheries (SZSE:200992), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Shandong Zhonglu Oceanic Fisheries, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.028 = CN¥48m ÷ (CN¥2.1b - CN¥369m) (Based on the trailing twelve months to March 2024).

Thus, Shandong Zhonglu Oceanic Fisheries has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.6%.

See our latest analysis for Shandong Zhonglu Oceanic Fisheries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Shandong Zhonglu Oceanic Fisheries.

The Trend Of ROCE

When we looked at the ROCE trend at Shandong Zhonglu Oceanic Fisheries, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.8% from 11% five years ago. However it looks like Shandong Zhonglu Oceanic Fisheries might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by Shandong Zhonglu Oceanic Fisheries' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 55% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Shandong Zhonglu Oceanic Fisheries has the makings of a multi-bagger.

If you'd like to know more about Shandong Zhonglu Oceanic Fisheries, we've spotted 2 warning signs, and 1 of them is concerning.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.