The Returns On Capital At Chinese Universe Publishing and Media Group (SHSE:600373) Don't Inspire Confidence

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing 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.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

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

Thus, 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 5.2% 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 .

What Can We Tell From Chinese Universe Publishing and Media Group's ROCE Trend?

When we looked at the ROCE trend at Chinese Universe Publishing and Media Group, we didn't gain much confidence. Around five years ago the returns on capital were 11%, but since then they've fallen to 6.4%. 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.

What We Can Learn From Chinese Universe Publishing and Media Group's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Chinese Universe Publishing and Media Group have fallen, meanwhile the business is employing more capital than it was five years ago. However the stock has delivered a 41% return to shareholders over the last five years, so investors might be expecting the trends to turn around. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you want to continue researching Chinese Universe Publishing and Media Group, you might be interested to know about the 2 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.