Here's What To Make Of Meisheng Cultural & Creative Corp's (SZSE:002699) Decelerating Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Meisheng Cultural & Creative Corp (SZSE:002699) 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. Analysts use this formula to calculate it for Meisheng Cultural & Creative Corp:

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

0.039 = CN¥55m ÷ (CN¥1.8b - CN¥417m) (Based on the trailing twelve months to September 2023).

So, Meisheng Cultural & Creative Corp has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Luxury industry average of 5.0%.

Check out our latest analysis for Meisheng Cultural & Creative Corp

Historical performance is a great place to start when researching a stock so above you can see the gauge for Meisheng Cultural & Creative Corp's ROCE against it's prior returns. If you'd like to look at how Meisheng Cultural & Creative Corp has performed in the past in other metrics, you can view this free graph of Meisheng Cultural & Creative Corp's past earnings, revenue and cash flow.

So How Is Meisheng Cultural & Creative Corp's ROCE Trending?

We're a bit concerned with the trends, because the business is applying 62% less capital than it was five years ago and returns on that capital have stayed flat. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

The Bottom Line

In summary, Meisheng Cultural & Creative Corp isn't reinvesting funds back into the business and returns aren't growing. Moreover, since the stock has crumbled 81% over the last five years, it appears investors are expecting the worst. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Meisheng Cultural & Creative Corp does have some risks though, and we've spotted 1 warning sign for Meisheng Cultural & Creative Corp that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.