Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Great-Sun Foods (SHSE:603336) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Great-Sun Foods, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.028 = CN¥39m ÷ (CN¥1.8b - CN¥384m) (Based on the trailing twelve months to September 2023).
Therefore, Great-Sun Foods has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.5%.
See our latest analysis for Great-Sun Foods
Historical performance is a great place to start when researching a stock so above you can see the gauge for Great-Sun Foods' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Great-Sun Foods, check out these free graphs here.
How Are Returns Trending?
When we looked at the ROCE trend at Great-Sun Foods, we didn't gain much confidence. To be more specific, ROCE has fallen from 7.4% 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 may take some time before the company starts to see any change in earnings from these investments.
Our Take On Great-Sun Foods' ROCE
In summary, Great-Sun Foods is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 11% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
One final note, you should learn about the 3 warning signs we've spotted with Great-Sun Foods (including 2 which are potentially serious) .
While Great-Sun Foods 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.
