Returns On Capital Signal Tricky Times Ahead For Chinese Universe Publishing and Media Group (SHSE:600373)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 Chinese Universe Publishing and Media Group (SHSE:600373), it didn't seem to tick all of these boxes.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Chinese Universe Publishing and Media Group, this is the formula:

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

0.064 = CN¥1.3b ÷ (CN¥32b - CN¥12b) (Based on the trailing twelve months to September 2023).

So, Chinese Universe Publishing and Media Group has an ROCE of 6.4%. On its own that's a low return, but compared to the average of 4.1% generated by the Media industry, it's much better.

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 .

The Trend Of ROCE

In terms of Chinese Universe Publishing and Media Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.4% from 11% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On Chinese Universe Publishing and Media Group's ROCE

We're a bit apprehensive about Chinese Universe Publishing and Media Group because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Despite the concerning underlying trends, the stock has actually gained 32% over the last five years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Chinese Universe Publishing and Media Group does have some risks though, and we've spotted 1 warning sign for Chinese Universe Publishing and Media Group that you might be interested in.

While Chinese Universe Publishing and Media Group 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.