Southern Publishing and MediaLtd's (SHSE:601900) Returns On Capital Are Heading Higher

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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, Southern Publishing and MediaLtd (SHSE:601900) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Southern Publishing and MediaLtd, this is the formula:

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

0.11 = CN¥1.1b ÷ (CN¥16b - CN¥5.9b) (Based on the trailing twelve months to June 2024).

Therefore, Southern Publishing and MediaLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 4.1% it's much better.

View our latest analysis for Southern Publishing and MediaLtd

In the above chart we have measured Southern Publishing and 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 Southern Publishing and MediaLtd .

What Does the ROCE Trend For Southern Publishing and MediaLtd Tell Us?

The trends we've noticed at Southern Publishing and MediaLtd are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 62%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Southern Publishing and MediaLtd's ROCE

All in all, it's terrific to see that Southern Publishing and MediaLtd is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 88% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing Southern Publishing and MediaLtd we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While Southern Publishing and MediaLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.