Returns On Capital At Zhejiang Daily Digital Culture GroupLtd (SHSE:600633) Have Stalled

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Although, when we looked at Zhejiang Daily Digital Culture GroupLtd (SHSE:600633), it didn't seem to tick all of these boxes.

Understanding 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 Zhejiang Daily Digital Culture GroupLtd is:

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

0.053 = CN¥583m ÷ (CN¥12b - CN¥1.3b) (Based on the trailing twelve months to September 2024).

Thus, Zhejiang Daily Digital Culture GroupLtd has an ROCE of 5.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.3%.

Check out our latest analysis for Zhejiang Daily Digital Culture GroupLtd

Above you can see how the current ROCE for Zhejiang Daily Digital Culture GroupLtd 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 Zhejiang Daily Digital Culture GroupLtd .

What The Trend Of ROCE Can Tell Us

In terms of Zhejiang Daily Digital Culture GroupLtd's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 5.3% for the last five years, and the capital employed within the business has risen 20% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Zhejiang Daily Digital Culture GroupLtd's ROCE

As we've seen above, Zhejiang Daily Digital Culture GroupLtd's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 22% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Zhejiang Daily Digital Culture GroupLtd does have some risks though, and we've spotted 3 warning signs for Zhejiang Daily Digital Culture GroupLtd that you might be interested in.

While Zhejiang Daily Digital Culture GroupLtd 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.