Some Investors May Be Worried About Qingdao Citymedia Co's (SHSE:600229) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Qingdao Citymedia Co (SHSE:600229) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Qingdao Citymedia Co is:

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

0.083 = CN¥262m ÷ (CN¥4.2b - CN¥1.0b) (Based on the trailing twelve months to September 2023).

So, Qingdao Citymedia Co has an ROCE of 8.3%. In absolute terms, that's a low return, but it's much better than the Media industry average of 4.9%.

See our latest analysis for Qingdao Citymedia Co

Above you can see how the current ROCE for Qingdao Citymedia Co compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Qingdao Citymedia Co .

The Trend Of ROCE

When we looked at the ROCE trend at Qingdao Citymedia Co, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 8.3% from 12% 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.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by Qingdao Citymedia Co's reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 7.4% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Qingdao Citymedia Co does have some risks though, and we've spotted 3 warning signs for Qingdao Citymedia Co that you might be interested in.

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.