CSG Holding (SZSE:000012) Hasn't Managed To Accelerate Its Returns

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. 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. However, after investigating CSG Holding (SZSE:000012), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 CSG Holding:

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

0.08 = CN¥1.8b ÷ (CN¥32b - CN¥10.0b) (Based on the trailing twelve months to June 2024).

So, CSG Holding has an ROCE of 8.0%. In absolute terms, that's a low return, but it's much better than the Basic Materials industry average of 5.9%.

View our latest analysis for CSG Holding

In the above chart we have measured CSG Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for CSG Holding .

What Does the ROCE Trend For CSG Holding Tell Us?

In terms of CSG Holding's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 8.0% for the last five years, and the capital employed within the business has risen 73% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On CSG Holding's ROCE

Long story short, while CSG Holding has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 24% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know about the risks facing CSG Holding, we've discovered 1 warning sign that you should be aware of.

While CSG Holding 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.