Slowing Rates Of Return At Jiangsu Phoenix Publishing & Media (SHSE:601928) Leave Little Room For Excitement

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. However, after briefly looking over the numbers, we don't think Jiangsu Phoenix Publishing & Media (SHSE:601928) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Jiangsu Phoenix Publishing & Media is:

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

0.07 = CN¥1.4b ÷ (CN¥31b - CN¥11b) (Based on the trailing twelve months to September 2024).

Therefore, Jiangsu Phoenix Publishing & Media has an ROCE of 7.0%. In absolute terms, that's a low return, but it's much better than the Media industry average of 5.2%.

View our latest analysis for Jiangsu Phoenix Publishing & Media

Above you can see how the current ROCE for Jiangsu Phoenix Publishing & Media compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Jiangsu Phoenix Publishing & Media for free.

The Trend Of ROCE

In terms of Jiangsu Phoenix Publishing & Media's historical ROCE trend, it doesn't exactly demand attention. The company has employed 35% more capital in the last five years, and the returns on that capital have remained stable at 7.0%. 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.

Our Take On Jiangsu Phoenix Publishing & Media's ROCE

In conclusion, Jiangsu Phoenix Publishing & Media has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 99% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Jiangsu Phoenix Publishing & Media (of which 1 makes us a bit uncomfortable!) that you should know about.

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.