Return Trends At Dalian Sunasia Tourism HoldingLTD (SHSE:600593) Aren't Appealing

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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Dalian Sunasia Tourism HoldingLTD (SHSE:600593) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Dalian Sunasia Tourism HoldingLTD:

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

0.11 = CN¥138m ÷ (CN¥2.2b - CN¥922m) (Based on the trailing twelve months to September 2023).

So, Dalian Sunasia Tourism HoldingLTD has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 8.2% it's much better.

See our latest analysis for Dalian Sunasia Tourism HoldingLTD

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dalian Sunasia Tourism HoldingLTD's ROCE against it's prior returns. If you're interested in investigating Dalian Sunasia Tourism HoldingLTD's past further, check out this free graph covering Dalian Sunasia Tourism HoldingLTD's past earnings, revenue and cash flow.

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. The company has employed 25% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Another thing to note, Dalian Sunasia Tourism HoldingLTD has a high ratio of current liabilities to total assets of 43%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Dalian Sunasia Tourism HoldingLTD's ROCE

The main thing to remember is that Dalian Sunasia Tourism HoldingLTD has proven its ability to continually reinvest at respectable rates of return. Yet over the last five years the stock has declined 39%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Dalian Sunasia Tourism HoldingLTD does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

While Dalian Sunasia Tourism HoldingLTD 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.