Shanghai Xinhua Media (SHSE:600825) Is Looking To Continue Growing Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Shanghai Xinhua Media (SHSE:600825) looks quite promising in regards to its trends of return on capital.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Shanghai Xinhua Media:

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

0.013 = CN¥33m ÷ (CN¥4.2b - CN¥1.6b) (Based on the trailing twelve months to September 2024).

So, Shanghai Xinhua Media has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Media industry average of 5.2%.

View our latest analysis for Shanghai Xinhua Media

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Shanghai Xinhua Media has performed in the past in other metrics, you can view this free graph of Shanghai Xinhua Media's past earnings, revenue and cash flow.

How Are Returns Trending?

Shanghai Xinhua Media has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 1.3%, which is always encouraging. While returns have increased, the amount of capital employed by Shanghai Xinhua Media has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

What We Can Learn From Shanghai Xinhua Media's ROCE

In summary, we're delighted to see that Shanghai Xinhua Media has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 3.6% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a separate note, we've found 2 warning signs for Shanghai Xinhua Media you'll probably want to know about.

While Shanghai Xinhua Media 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.