Returns At Western Regions Tourism DevelopmentLtd (SZSE:300859) Appear To Be Weighed Down

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Western Regions Tourism DevelopmentLtd's (SZSE:300859) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 Western Regions Tourism DevelopmentLtd:

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

0.16 = CN¥117m ÷ (CN¥784m - CN¥37m) (Based on the trailing twelve months to June 2024).

So, Western Regions Tourism DevelopmentLtd has an ROCE of 16%. 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 Western Regions Tourism DevelopmentLtd

In the above chart we have measured Western Regions Tourism DevelopmentLtd'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 Western Regions Tourism DevelopmentLtd for free.

What Does the ROCE Trend For Western Regions Tourism DevelopmentLtd Tell Us?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 76% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that Western Regions Tourism DevelopmentLtd has consistently earned this amount. 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.

What We Can Learn From Western Regions Tourism DevelopmentLtd's ROCE

The main thing to remember is that Western Regions Tourism DevelopmentLtd has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 50% return if they held over the last three years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Western Regions Tourism DevelopmentLtd, we've discovered 2 warning signs that you should be aware of.

While Western Regions Tourism DevelopmentLtd 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.