Returns On Capital At Gansu Guofang Industry & Trade (Group) (SHSE:601086) Have Hit The Brakes

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Gansu Guofang Industry & Trade (Group) (SHSE:601086), it didn't seem to tick all of these boxes.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Gansu Guofang Industry & Trade (Group) is:

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

0.064 = CN¥119m ÷ (CN¥2.6b - CN¥714m) (Based on the trailing twelve months to June 2024).

So, Gansu Guofang Industry & Trade (Group) has an ROCE of 6.4%. In absolute terms, that's a low return, but it's much better than the Multiline Retail industry average of 4.2%.

See our latest analysis for Gansu Guofang Industry & Trade (Group)

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're interested in investigating Gansu Guofang Industry & Trade (Group)'s past further, check out this free graph covering Gansu Guofang Industry & Trade (Group)'s past earnings, revenue and cash flow.

How Are Returns Trending?

There hasn't been much to report for Gansu Guofang Industry & Trade (Group)'s returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Gansu Guofang Industry & Trade (Group) to be a multi-bagger going forward.

The Bottom Line

We can conclude that in regards to Gansu Guofang Industry & Trade (Group)'s returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 4.8% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a separate note, we've found 3 warning signs for Gansu Guofang Industry & Trade (Group) you'll probably want to know about.

While Gansu Guofang Industry & Trade (Group) 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.