Shanghai Zijiang Enterprise Group's (SHSE:600210) Returns Have Hit A Wall

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. With that in mind, the ROCE of Shanghai Zijiang Enterprise Group (SHSE:600210) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Shanghai Zijiang Enterprise Group:

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

0.10 = CN¥800m ÷ (CN¥13b - CN¥4.7b) (Based on the trailing twelve months to September 2023).

Thus, Shanghai Zijiang Enterprise Group has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 4.4% generated by the Packaging industry.

Check out our latest analysis for Shanghai Zijiang Enterprise Group

In the above chart we have measured Shanghai Zijiang Enterprise Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Shanghai Zijiang Enterprise Group .

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 10% and the business has deployed 55% more capital into its operations. 10% is a pretty standard return, and it provides some comfort knowing that Shanghai Zijiang Enterprise Group has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Shanghai Zijiang Enterprise Group has done well to reduce current liabilities to 38% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

Our Take On Shanghai Zijiang Enterprise Group's ROCE

The main thing to remember is that Shanghai Zijiang Enterprise Group has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 39% over the last five years, we'd suspect the market is beginning to recognize these trends. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

On a separate note, we've found 1 warning sign for Shanghai Zijiang Enterprise Group you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.