Capital Allocation Trends At Shandong Zhonglu Oceanic Fisheries (SZSE:200992) Aren't Ideal

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Shandong Zhonglu Oceanic Fisheries (SZSE:200992) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

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)

0.027 = CN¥47m ÷ (CN¥2.0b - CN¥312m) (Based on the trailing twelve months to June 2024).

So, Shandong Zhonglu Oceanic Fisheries has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.8%.

Check out 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're interested in investigating Shandong Zhonglu Oceanic Fisheries' past further, check out this free graph covering Shandong Zhonglu Oceanic Fisheries' past earnings, revenue and cash flow.

The Trend Of ROCE

On the surface, the trend of ROCE at Shandong Zhonglu Oceanic Fisheries doesn't inspire confidence. Around five years ago the returns on capital were 10%, but since then they've fallen to 2.7%. 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

To conclude, we've found that Shandong Zhonglu Oceanic Fisheries is reinvesting in the business, but returns have been falling. Since the stock has declined 28% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Shandong Zhonglu Oceanic Fisheries (including 1 which makes us a bit uncomfortable) .

While Shandong Zhonglu Oceanic Fisheries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.