The Returns On Capital At Jiujiuwang Food International (HKG:1927) Don't Inspire Confidence
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. 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. However, after investigating Jiujiuwang Food International (HKG:1927), we don't think it's current trends fit the mold of a multi-bagger.
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 Jiujiuwang Food International is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = CN¥60m ÷ (CN¥646m - CN¥247m) (Based on the trailing twelve months to June 2022).
So, Jiujiuwang Food International has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 8.3% it's much better.
View our latest analysis for Jiujiuwang Food International
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 Jiujiuwang Food International's past further, check out this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
In terms of Jiujiuwang Food International's historical ROCE movements, the trend isn't fantastic. Over the last four years, returns on capital have decreased to 15% from 33% four years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
On a related note, Jiujiuwang Food International has decreased its current liabilities to 38% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
What We Can Learn From Jiujiuwang Food International's ROCE
In summary, Jiujiuwang Food International is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Additionally, the stock's total return to shareholders over the last year has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
If you want to know some of the risks facing Jiujiuwang Food International we've found 4 warning signs (2 are potentially serious!) that you should be aware of before investing here.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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Find out whether Jiujiuwang Food International is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Jiujiuwang Food International
Jiujiuwang Food International Limited, an investment holding company, engages in the manufacture and sale of confectionary products in the People’s Republic of China, rest of Asia, Europe, and internationally.
Mediocre balance sheet and slightly overvalued.