Investors Met With Slowing Returns on Capital At CSG Holding (SZSE:000012)

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 CSG Holding (SZSE:000012), 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. The formula for this calculation on CSG Holding is:

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

0.096 = CN¥2.0b ÷ (CN¥29b - CN¥8.2b) (Based on the trailing twelve months to September 2023).

Therefore, CSG Holding has an ROCE of 9.6%. In absolute terms, that's a low return, but it's much better than the Basic Materials industry average of 6.4%.

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're interested, you can view the analysts predictions in our free analyst report for CSG Holding .

What Does the ROCE Trend For CSG Holding Tell Us?

There are better returns on capital out there than what we're seeing at CSG Holding. Over the past five years, ROCE has remained relatively flat at around 9.6% and the business has deployed 61% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On CSG Holding's ROCE

In conclusion, CSG Holding has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 15% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for CSG Holding (of which 1 doesn't sit too well with us!) that you should know about.

While CSG Holding 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.

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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.