Nanjing Xinjiekou Department Store (SHSE:600682) Is Reinvesting At Lower Rates Of Return

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Although, when we looked at Nanjing Xinjiekou Department Store (SHSE:600682), it didn't seem to tick all of these boxes.

Understanding 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. Analysts use this formula to calculate it for Nanjing Xinjiekou Department Store:

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

0.031 = CN¥607m ÷ (CN¥26b - CN¥5.9b) (Based on the trailing twelve months to September 2024).

So, Nanjing Xinjiekou Department Store has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 8.8%.

Check out our latest analysis for Nanjing Xinjiekou Department Store

Above you can see how the current ROCE for Nanjing Xinjiekou Department Store compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Nanjing Xinjiekou Department Store .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Nanjing Xinjiekou Department Store, we didn't gain much confidence. To be more specific, ROCE has fallen from 15% over the last five years. However it looks like Nanjing Xinjiekou Department Store might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

To conclude, we've found that Nanjing Xinjiekou Department Store is reinvesting in the business, but returns have been falling. Since the stock has declined 24% over the last five years, investors may not be too optimistic on this trend improving either. 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.

Like most companies, Nanjing Xinjiekou Department Store does come with some risks, and we've found 1 warning sign that you should be aware of.

While Nanjing Xinjiekou Department Store 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.

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

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.