Some Investors May Be Worried About Inmyshow Digital Technology(Group)Co.Ltd's (SHSE:600556) 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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Inmyshow Digital Technology(Group)Co.Ltd (SHSE:600556), it didn't seem to tick all of these boxes.

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

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 Inmyshow Digital Technology(Group)Co.Ltd, this is the formula:

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

0.017 = CN¥66m ÷ (CN¥5.6b - CN¥1.7b) (Based on the trailing twelve months to June 2024).

Therefore, Inmyshow Digital Technology(Group)Co.Ltd has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Media industry average of 3.8%.

Check out our latest analysis for Inmyshow Digital Technology(Group)Co.Ltd

Above you can see how the current ROCE for Inmyshow Digital Technology(Group)Co.Ltd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Inmyshow Digital Technology(Group)Co.Ltd .

How Are Returns Trending?

In terms of Inmyshow Digital Technology(Group)Co.Ltd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 26%, but since then they've fallen to 1.7%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Inmyshow Digital Technology(Group)Co.Ltd's ROCE

Bringing it all together, while we're somewhat encouraged by Inmyshow Digital Technology(Group)Co.Ltd's reinvestment in its own business, we're aware that returns are shrinking. And in the last three years, the stock has given away 56% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Inmyshow Digital Technology(Group)Co.Ltd has the makings of a multi-bagger.

Inmyshow Digital Technology(Group)Co.Ltd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 600556 on our platform quite valuable.

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.