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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. 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 Shandong Sunpaper (SZSE:002078), it didn't seem to tick all of these boxes.
What Is 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. Analysts use this formula to calculate it for Shandong Sunpaper:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = CN¥3.3b ÷ (CN¥51b - CN¥19b) (Based on the trailing twelve months to December 2023).
So, Shandong Sunpaper has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Forestry industry average of 3.4% it's much better.
SZSE:002078 Return on Capital Employed March 1st 2024
In the above chart we have measured Shandong Sunpaper's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Shandong Sunpaper for free.
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at Shandong Sunpaper doesn't inspire confidence. Over the last five years, returns on capital have decreased to 10% from 23% five 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'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.
On a related note, Shandong Sunpaper has decreased its current liabilities to 37% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. 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 Shandong Sunpaper's ROCE
In summary, Shandong Sunpaper is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 111% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
On a final note, we've found 1 warning sign for Shandong Sunpaper that we think you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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.
次のマルチバッガーを探す際にどこから始めたらよいかわからない場合、いくつかのキーとなる傾向があるため、注意が必要です。理想的には、企業は二つの傾向を示すことが望ましいです。第一に、資本利益(ROCE)の増加、第二に、投入資本の増加です。言い換えると、これらの種類の企業は、収益を増幅させ、さらに高い収益率で継続的に再投資している意味で複利機関となっています。ただし、山東太陽紙業(SZSE:002078)を調べたところ、完全にこの条件を満たしているわけではなさそうです。使用しなくてはいけないキーとなる傾向がいくつかあります。理想的には、企業が投入資本利益(ROCE)の増加と投入資本の増加を示すことが望ましいです。言い換えると、これらの企業は、収益率が大幅に向上した状態で収益を再投資し続ける複利機関となっています。Shandong Sunpaper(SZSE:002078)の場合、ROCEとは何か? ROCEを使用したことがない場合は、これは、会社がビジネスに投資した資本から得た「利益(税引前利益)」を測定するものです。アナリストは、Shandong SunpaperのROCEを計算するために、この式を使用します。 Return on Capital Employed = Earnings Before Interest and Tax(EBIT)÷(Total Assets - Current Liabilities)(2013年12月までの過去12か月を表します)。従ってShandong SunpaperのROCEは10%です。単一の観点から見ると、それは合理的な収益ですが、林業業界の平均値である3.4%と比較すると遥かに優れています。On the surface, the trend of ROCE at Shandong Sunpaper doesn't inspire confidence. Over the last five years, returns on capital have decreased to 10% from 23% five 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'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. On the surface, the trend of ROCE at Shandong Sunpaper doesn't inspire confidence. Over the last five years, returns on capital have decreased to 10% from 23% five 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'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.
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。