Investors Met With Slowing Returns on Capital At Changjiang Publishing & MediaLtd (SHSE:600757)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Changjiang Publishing & MediaLtd (SHSE:600757) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Changjiang Publishing & MediaLtd, this is the formula:

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

0.068 = CN¥648m ÷ (CN¥14b - CN¥4.0b) (Based on the trailing twelve months to March 2024).

Therefore, Changjiang Publishing & MediaLtd has an ROCE of 6.8%. In absolute terms, that's a low return, but it's much better than the Media industry average of 4.1%.

View our latest analysis for Changjiang Publishing & MediaLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Changjiang Publishing & MediaLtd's ROCE against it's prior returns. If you're interested in investigating Changjiang Publishing & MediaLtd's past further, check out this free graph covering Changjiang Publishing & MediaLtd's past earnings, revenue and cash flow.

What Can We Tell From Changjiang Publishing & MediaLtd's ROCE Trend?

The returns on capital haven't changed much for Changjiang Publishing & MediaLtd in recent years. Over the past five years, ROCE has remained relatively flat at around 6.8% and the business has deployed 32% more capital into its operations. 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.

In Conclusion...

In conclusion, Changjiang Publishing & MediaLtd has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 49% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing Changjiang Publishing & MediaLtd, we've discovered 1 warning sign that you should be aware of.

While Changjiang Publishing & MediaLtd 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.