Shenzhen Leaguer (SZSE:002243) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after investigating Shenzhen Leaguer (SZSE:002243), we don't think it's current trends fit the mold of a multi-bagger.

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

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 Shenzhen Leaguer:

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

0.0023 = CN¥32m ÷ (CN¥16b - CN¥2.3b) (Based on the trailing twelve months to September 2024).

So, Shenzhen Leaguer has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Packaging industry average of 5.2%.

See our latest analysis for Shenzhen Leaguer

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenzhen Leaguer's ROCE against it's prior returns. If you're interested in investigating Shenzhen Leaguer's past further, check out this free graph covering Shenzhen Leaguer's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Shenzhen Leaguer's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 31%, but since then they've fallen to 0.2%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On Shenzhen Leaguer's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Shenzhen Leaguer have fallen, meanwhile the business is employing more capital than it was five years ago. Long term shareholders who've owned the stock over the last five years have experienced a 26% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Shenzhen Leaguer (of which 2 are potentially serious!) that you should know about.

While Shenzhen Leaguer 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.