Changbai Mountain Tourism (SHSE:603099) Is Experiencing Growth In Returns On Capital

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Changbai Mountain Tourism (SHSE:603099) and its trend of ROCE, we really liked what we saw.

What Is 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 Changbai Mountain Tourism:

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

0.18 = CN¥205m ÷ (CN¥1.2b - CN¥99m) (Based on the trailing twelve months to March 2024).

Thus, Changbai Mountain Tourism has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Hospitality industry.

See our latest analysis for Changbai Mountain Tourism

Above you can see how the current ROCE for Changbai Mountain Tourism compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Changbai Mountain Tourism for free.

What Does the ROCE Trend For Changbai Mountain Tourism Tell Us?

Changbai Mountain Tourism has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 105% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Changbai Mountain Tourism's ROCE

As discussed above, Changbai Mountain Tourism appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 149% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Changbai Mountain Tourism can keep these trends up, it could have a bright future ahead.

Changbai Mountain Tourism does have some risks though, and we've spotted 1 warning sign for Changbai Mountain Tourism that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com