Returns At Chengdu B-ray MediaLtd (SHSE:600880) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Chengdu B-ray MediaLtd (SHSE:600880) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Chengdu B-ray MediaLtd, this is the formula:

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

0.006 = CN¥20m ÷ (CN¥4.0b - CN¥601m) (Based on the trailing twelve months to September 2024).

Thus, Chengdu B-ray MediaLtd has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Media industry average of 5.2%.

See our latest analysis for Chengdu B-ray MediaLtd

In the above chart we have measured Chengdu B-ray MediaLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Chengdu B-ray MediaLtd .

So How Is Chengdu B-ray MediaLtd's ROCE Trending?

Shareholders will be relieved that Chengdu B-ray MediaLtd has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 0.6%, which is always encouraging. While returns have increased, the amount of capital employed by Chengdu B-ray MediaLtd 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. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

Our Take On Chengdu B-ray MediaLtd's ROCE

As discussed above, Chengdu B-ray MediaLtd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has only returned 39% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we've found 2 warning signs for Chengdu B-ray MediaLtd that we think you should be aware of.

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.