Return Trends At Sichuan Hebang Biotechnology (SHSE:603077) Aren't Appealing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 Sichuan Hebang Biotechnology (SHSE:603077) 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. Analysts use this formula to calculate it for Sichuan Hebang Biotechnology:

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

0.048 = CN¥995m ÷ (CN¥26b - CN¥5.1b) (Based on the trailing twelve months to March 2024).

Thus, Sichuan Hebang Biotechnology has an ROCE of 4.8%. Even though it's in line with the industry average of 5.5%, it's still a low return by itself.

See our latest analysis for Sichuan Hebang Biotechnology

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 Sichuan Hebang Biotechnology.

So How Is Sichuan Hebang Biotechnology's ROCE Trending?

The returns on capital haven't changed much for Sichuan Hebang Biotechnology in recent years. Over the past five years, ROCE has remained relatively flat at around 4.8% and the business has deployed 80% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In conclusion, Sichuan Hebang Biotechnology has been investing more capital into the business, but returns on that capital haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 11% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing, we've spotted 1 warning sign facing Sichuan Hebang Biotechnology that you might find interesting.

While Sichuan Hebang Biotechnology 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.