What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Although, when we looked at XIANGPIAOPIAO FoodLtd (SHSE:603711), 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. Analysts use this formula to calculate it for XIANGPIAOPIAO FoodLtd:

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

0.067 = CN¥219m ÷ (CN¥4.3b - CN¥1.0b) (Based on the trailing twelve months to June 2024).

Therefore, XIANGPIAOPIAO FoodLtd has an ROCE of 6.7%. Even though it's in line with the industry average of 7.2%, it's still a low return by itself.

Above you can see how the current ROCE for XIANGPIAOPIAO FoodLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering XIANGPIAOPIAO FoodLtd for free.

What Can We Tell From XIANGPIAOPIAO FoodLtd's ROCE Trend?

In terms of XIANGPIAOPIAO FoodLtd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 22% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On XIANGPIAOPIAO FoodLtd's ROCE

To conclude, we've found that XIANGPIAOPIAO FoodLtd is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 56% in the last five years. Therefore based on the analysis done in this article, we don't think XIANGPIAOPIAO FoodLtd has the makings of a multi-bagger.

One more thing to note, we've identified 2 warning signs with XIANGPIAOPIAO FoodLtd and understanding these should be part of your investment process.

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

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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.