Zhejiang Qianjiang Biochemical (SHSE:600796) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So on that note, Zhejiang Qianjiang Biochemical (SHSE:600796) looks quite promising in regards to its trends of return on capital.

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

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. The formula for this calculation on Zhejiang Qianjiang Biochemical is:

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

0.054 = CN¥264m ÷ (CN¥6.7b - CN¥1.7b) (Based on the trailing twelve months to March 2024).

Therefore, Zhejiang Qianjiang Biochemical has an ROCE of 5.4%. In absolute terms, that's a low return but it's around the Chemicals industry average of 5.6%.

Check out our latest analysis for Zhejiang Qianjiang Biochemical

Above you can see how the current ROCE for Zhejiang Qianjiang Biochemical compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Zhejiang Qianjiang Biochemical for free.

The Trend Of ROCE

We're delighted to see that Zhejiang Qianjiang Biochemical is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 5.4% on its capital. And unsurprisingly, like most companies trying to break into the black, Zhejiang Qianjiang Biochemical is utilizing 591% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On Zhejiang Qianjiang Biochemical's ROCE

To the delight of most shareholders, Zhejiang Qianjiang Biochemical has now broken into profitability. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 600796 that compares the share price and estimated value.

While Zhejiang Qianjiang Biochemical 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.