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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Shandong Yisheng Livestock & Poultry Breeding (SZSE:002458) and its ROCE trend, we weren't exactly thrilled.

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 Shandong Yisheng Livestock & Poultry Breeding is:

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

0.14 = CN¥666m ÷ (CN¥6.6b - CN¥1.7b) (Based on the trailing twelve months to December 2023).

So, Shandong Yisheng Livestock & Poultry Breeding has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.5% it's much better.

Above you can see how the current ROCE for Shandong Yisheng Livestock & Poultry Breeding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shandong Yisheng Livestock & Poultry Breeding .

How Are Returns Trending?

Unfortunately, the trend isn't great with ROCE falling from 24% five years ago, while capital employed has grown 189%. That being said, Shandong Yisheng Livestock & Poultry Breeding raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Shandong Yisheng Livestock & Poultry Breeding's earnings and if they change as a result from the capital raise.

What We Can Learn From Shandong Yisheng Livestock & Poultry Breeding's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Shandong Yisheng Livestock & Poultry Breeding is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 16% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to continue researching Shandong Yisheng Livestock & Poultry Breeding, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Shandong Yisheng Livestock & Poultry Breeding 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.