Investors Will Want Zhejiang Sunriver Culture TourismLtd's (SHSE:600576) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Zhejiang Sunriver Culture TourismLtd's (SHSE:600576) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Zhejiang Sunriver Culture TourismLtd is:

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

0.051 = CN¥172m ÷ (CN¥3.7b - CN¥335m) (Based on the trailing twelve months to March 2024).

Thus, Zhejiang Sunriver Culture TourismLtd has an ROCE of 5.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.1%.

Check out our latest analysis for Zhejiang Sunriver Culture TourismLtd

In the above chart we have measured Zhejiang Sunriver Culture TourismLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Zhejiang Sunriver Culture TourismLtd .

What Can We Tell From Zhejiang Sunriver Culture TourismLtd's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.1%. The amount of capital employed has increased too, by 76%. So we're very much inspired by what we're seeing at Zhejiang Sunriver Culture TourismLtd thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Zhejiang Sunriver Culture TourismLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has only returned 1.9% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

Zhejiang Sunriver Culture TourismLtd does have some risks though, and we've spotted 1 warning sign for Zhejiang Sunriver Culture TourismLtd that you might be interested in.

While Zhejiang Sunriver Culture TourismLtd 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.