Returns On Capital At China Television Media (SHSE:600088) Paint A Concerning Picture

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into China Television Media (SHSE:600088), we weren't too upbeat about how things were going.

Understanding 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. To calculate this metric for China Television Media, this is the formula:

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

0.0037 = CN¥5.6m ÷ (CN¥1.8b - CN¥301m) (Based on the trailing twelve months to September 2024).

Thus, China Television Media has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 5.3%.

View our latest analysis for China Television Media

Historical performance is a great place to start when researching a stock so above you can see the gauge for China Television Media's ROCE against it's prior returns. If you're interested in investigating China Television Media's past further, check out this free graph covering China Television Media's past earnings, revenue and cash flow.

The Trend Of ROCE

We are a bit worried about the trend of returns on capital at China Television Media. About five years ago, returns on capital were 10%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect China Television Media to turn into a multi-bagger.

The Bottom Line

In summary, it's unfortunate that China Television Media is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 28% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One more thing, we've spotted 2 warning signs facing China Television Media that you might find interesting.

While China Television Media 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.