Nanjing Xinjiekou Department Store (SHSE:600682) Will Want To Turn Around Its Return Trends

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Nanjing Xinjiekou Department Store (SHSE:600682), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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).

Thus, Nanjing Xinjiekou Department Store has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 9.0%.

Check out our latest analysis for Nanjing Xinjiekou Department Store

In the above chart we have measured Nanjing Xinjiekou Department Store's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Nanjing Xinjiekou Department Store .

The Trend Of ROCE

When we looked at the ROCE trend at Nanjing Xinjiekou Department Store, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.1% from 15% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Nanjing Xinjiekou Department Store's ROCE

In summary, Nanjing Xinjiekou Department Store is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 22% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing to note, we've identified 1 warning sign with Nanjing Xinjiekou Department Store and understanding it should be part of your investment process.

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.