Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. With that in mind, the ROCE of Qianhe Condiment and Food (SHSE:603027) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on Qianhe Condiment and Food is:

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

0.15 = CN¥533m ÷ (CN¥4.2b - CN¥686m) (Based on the trailing twelve months to September 2024).

Thus, Qianhe Condiment and Food has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Food industry.

Above you can see how the current ROCE for Qianhe Condiment and Food compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Qianhe Condiment and Food .

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 110% more capital into its operations. 15% is a pretty standard return, and it provides some comfort knowing that Qianhe Condiment and Food has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Qianhe Condiment and Food's ROCE

To sum it up, Qianhe Condiment and Food has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock has only delivered a 26% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you're still interested in Qianhe Condiment and Food it's worth checking out our FREE intrinsic value approximation for 603027 to see if it's trading at an attractive price in other respects.

While Qianhe Condiment and Food 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.