Returns At China Shenshan Orchard Holdings (SGX:BKV) Are On The Way Up

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in China Shenshan Orchard Holdings' (SGX:BKV) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 China Shenshan Orchard Holdings is:

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

0.0043 = CN¥5.5m ÷ (CN¥1.3b - CN¥17m) (Based on the trailing twelve months to December 2023).

Thus, China Shenshan Orchard Holdings has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.6%.

Check out our latest analysis for China Shenshan Orchard Holdings

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'd like to look at how China Shenshan Orchard Holdings has performed in the past in other metrics, you can view this free graph of China Shenshan Orchard Holdings' past earnings, revenue and cash flow.

What Does the ROCE Trend For China Shenshan Orchard Holdings Tell Us?

China Shenshan Orchard Holdings has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 0.4% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, China Shenshan Orchard Holdings is utilizing 22% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 1.3%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that China Shenshan Orchard Holdings has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

Overall, China Shenshan Orchard Holdings gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Astute investors may have an opportunity here because the stock has declined 39% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 3 warning signs for China Shenshan Orchard Holdings (2 are significant) you should be aware of.

While China Shenshan Orchard Holdings 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.