Fujian Qingshan Paper Industry (SHSE:600103) Could Be At Risk Of Shrinking As A Company

What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after glancing at the trends within Fujian Qingshan Paper Industry (SHSE:600103), we weren't too hopeful.

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. The formula for this calculation on Fujian Qingshan Paper Industry is:

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

0.015 = CN¥67m ÷ (CN¥6.1b - CN¥1.7b) (Based on the trailing twelve months to June 2024).

Thus, Fujian Qingshan Paper Industry has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 6.5%.

View our latest analysis for Fujian Qingshan Paper Industry

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fujian Qingshan Paper Industry's ROCE against it's prior returns. If you'd like to look at how Fujian Qingshan Paper Industry has performed in the past in other metrics, you can view this free graph of Fujian Qingshan Paper Industry's past earnings, revenue and cash flow.

So How Is Fujian Qingshan Paper Industry's ROCE Trending?

We are a bit worried about the trend of returns on capital at Fujian Qingshan Paper Industry. About five years ago, returns on capital were 3.4%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Fujian Qingshan Paper Industry to turn into a multi-bagger.

In Conclusion...

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to continue researching Fujian Qingshan Paper Industry, you might be interested to know about the 3 warning signs that our analysis has discovered.

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.