Zhejiang Qianjiang Biochemical (SHSE:600796) Is Doing The Right Things To Multiply Its Share Price

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Zhejiang Qianjiang Biochemical (SHSE:600796) and its trend of ROCE, we really liked what we saw.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

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 Zhejiang Qianjiang Biochemical:

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

0.043 = CN¥245m ÷ (CN¥7.5b - CN¥1.8b) (Based on the trailing twelve months to September 2024).

Therefore, Zhejiang Qianjiang Biochemical has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 5.6%.

View our latest analysis for Zhejiang Qianjiang Biochemical

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'd like to look at how Zhejiang Qianjiang Biochemical has performed in the past in other metrics, you can view this free graph of Zhejiang Qianjiang Biochemical's past earnings, revenue and cash flow.

So How Is Zhejiang Qianjiang Biochemical's ROCE Trending?

Zhejiang Qianjiang Biochemical has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 4.3% which is a sight for sore eyes. Not only that, but the company is utilizing 704% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Zhejiang Qianjiang Biochemical's ROCE

Long story short, we're delighted to see that Zhejiang Qianjiang Biochemical's reinvestment activities have paid off and the company is now profitable. Considering the stock has delivered 0.2% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know more about Zhejiang Qianjiang Biochemical, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.