Qingdao Hiron Commercial Cold Chain (SHSE:603187) Will Be Hoping To Turn Its Returns On Capital Around

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. However, after investigating Qingdao Hiron Commercial Cold Chain (SHSE:603187), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Qingdao Hiron Commercial Cold Chain is:

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

0.098 = CN¥408m ÷ (CN¥5.7b - CN¥1.5b) (Based on the trailing twelve months to March 2024).

Therefore, Qingdao Hiron Commercial Cold Chain has an ROCE of 9.8%. On its own that's a low return, but compared to the average of 5.6% generated by the Machinery industry, it's much better.

Check out our latest analysis for Qingdao Hiron Commercial Cold Chain

In the above chart we have measured Qingdao Hiron Commercial Cold Chain'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 Qingdao Hiron Commercial Cold Chain for free.

The Trend Of ROCE

In terms of Qingdao Hiron Commercial Cold Chain's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 13% 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 Qingdao Hiron Commercial Cold Chain's ROCE

Bringing it all together, while we're somewhat encouraged by Qingdao Hiron Commercial Cold Chain's reinvestment in its own business, we're aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 27% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Qingdao Hiron Commercial Cold Chain does have some risks though, and we've spotted 1 warning sign for Qingdao Hiron Commercial Cold Chain that you might be interested in.

While Qingdao Hiron Commercial Cold Chain 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.