Investors Met With Slowing Returns on Capital At Jiangsu Phoenix Publishing & Media (SHSE:601928)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Jiangsu Phoenix Publishing & Media (SHSE:601928) and its ROCE trend, we weren't exactly thrilled.

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

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 Jiangsu Phoenix Publishing & Media, this is the formula:

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

0.079 = CN¥1.6b ÷ (CN¥32b - CN¥11b) (Based on the trailing twelve months to June 2024).

Therefore, Jiangsu Phoenix Publishing & Media has an ROCE of 7.9%. 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 Jiangsu Phoenix Publishing & Media

In the above chart we have measured Jiangsu Phoenix Publishing & Media's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Jiangsu Phoenix Publishing & Media .

What The Trend Of ROCE Can Tell Us

In terms of Jiangsu Phoenix Publishing & Media's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 7.9% for the last five years, and the capital employed within the business has risen 36% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In conclusion, Jiangsu Phoenix Publishing & Media 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 73% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing: We've identified 2 warning signs with Jiangsu Phoenix Publishing & Media (at least 1 which is significant) , and understanding them would certainly be useful.

While Jiangsu Phoenix Publishing & Media 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.