Zhejiang Sunflower Great Health (SZSE:300111) Is Doing The Right Things To Multiply Its Share Price

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Zhejiang Sunflower Great Health (SZSE:300111) and its trend of ROCE, we really liked what we saw.

Understanding 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. The formula for this calculation on Zhejiang Sunflower Great Health is:

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

0.042 = CN¥45m ÷ (CN¥1.5b - CN¥408m) (Based on the trailing twelve months to September 2023).

So, Zhejiang Sunflower Great Health has an ROCE of 4.2%. On its own, that's a low figure but it's around the 5.0% average generated by the Semiconductor industry.

Check out our latest analysis for Zhejiang Sunflower Great Health

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zhejiang Sunflower Great Health's ROCE against it's prior returns. If you'd like to look at how Zhejiang Sunflower Great Health has performed in the past in other metrics, you can view this free graph of Zhejiang Sunflower Great Health's past earnings, revenue and cash flow.

What Can We Tell From Zhejiang Sunflower Great Health's ROCE Trend?

Shareholders will be relieved that Zhejiang Sunflower Great Health has broken into profitability. The company now earns 4.2% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

On a related note, the company's ratio of current liabilities to total assets has decreased to 28%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Zhejiang Sunflower Great Health has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

To sum it up, Zhejiang Sunflower Great Health is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 24% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 1 warning sign facing Zhejiang Sunflower Great Health that you might find interesting.

While Zhejiang Sunflower Great Health isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.