Returns On Capital Are A Standout For Shandong HaihuaLtd (SZSE:000822)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Shandong HaihuaLtd's (SZSE:000822) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Shandong HaihuaLtd, this is the formula:

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

0.23 = CN¥1.3b ÷ (CN¥8.1b - CN¥2.4b) (Based on the trailing twelve months to December 2023).

Therefore, Shandong HaihuaLtd has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 6.0% earned by companies in a similar industry.

Check out our latest analysis for Shandong HaihuaLtd

Above you can see how the current ROCE for Shandong HaihuaLtd 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 Shandong HaihuaLtd for free.

The Trend Of ROCE

Investors would be pleased with what's happening at Shandong HaihuaLtd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 23%. The amount of capital employed has increased too, by 57%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Shandong HaihuaLtd's ROCE

All in all, it's terrific to see that Shandong HaihuaLtd is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 23% 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 with that in mind, we think the stock deserves further research.

On a final note, we found 2 warning signs for Shandong HaihuaLtd (1 shouldn't be ignored) you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.