Chinese Universe Publishing and Media Group (SHSE:600373) Might Be Having Difficulty Using Its Capital Effectively

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Chinese Universe Publishing and Media Group (SHSE:600373), we don't think it's current trends fit the mold of a multi-bagger.

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 Chinese Universe Publishing and Media Group is:

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

0.074 = CN¥1.5b ÷ (CN¥29b - CN¥8.5b) (Based on the trailing twelve months to December 2023).

Thus, Chinese Universe Publishing and Media Group has an ROCE of 7.4%. In absolute terms, that's a low return, but it's much better than the Media industry average of 4.0%.

View our latest analysis for Chinese Universe Publishing and Media Group

Above you can see how the current ROCE for Chinese Universe Publishing and Media Group 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 Chinese Universe Publishing and Media Group .

What Does the ROCE Trend For Chinese Universe Publishing and Media Group Tell Us?

When we looked at the ROCE trend at Chinese Universe Publishing and Media Group, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 7.4% from 10% 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.

The Bottom Line On Chinese Universe Publishing and Media Group's ROCE

Bringing it all together, while we're somewhat encouraged by Chinese Universe Publishing and Media Group's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 56% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know about the risks facing Chinese Universe Publishing and Media Group, we've discovered 1 warning sign that you should be aware of.

While Chinese Universe Publishing and Media Group 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.