Here's What To Make Of China Publishing & Media Holdings' (SHSE:601949) Decelerating Rates Of Return

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at China Publishing & Media Holdings (SHSE:601949) and its ROCE trend, we weren't exactly thrilled.

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

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. Analysts use this formula to calculate it for China Publishing & Media Holdings:

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

0.044 = CN¥500m ÷ (CN¥16b - CN¥4.1b) (Based on the trailing twelve months to March 2024).

Therefore, China Publishing & Media Holdings has an ROCE of 4.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.0%.

View our latest analysis for China Publishing & Media Holdings

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're interested in investigating China Publishing & Media Holdings' past further, check out this free graph covering China Publishing & Media Holdings' past earnings, revenue and cash flow.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at China Publishing & Media Holdings. Over the past five years, ROCE has remained relatively flat at around 4.4% and the business has deployed 32% more capital into its operations. 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.

Our Take On China Publishing & Media Holdings' ROCE

Long story short, while China Publishing & Media Holdings has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 13% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a separate note, we've found 3 warning signs for China Publishing & Media Holdings you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.