The Returns On Capital At China Publishing & Media Holdings (SHSE:601949) Don't Inspire Confidence

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at China Publishing & Media Holdings (SHSE:601949), it didn't seem to tick all of these boxes.

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

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. The formula for this calculation on China Publishing & Media Holdings is:

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

0.033 = CN¥380m ÷ (CN¥16b - CN¥4.3b) (Based on the trailing twelve months to June 2024).

Thus, China Publishing & Media Holdings has an ROCE of 3.3%. On its own, that's a low figure but it's around the 4.1% average generated by the Media industry.

Check out our latest analysis for China Publishing & Media Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for China Publishing & Media Holdings' ROCE against it's prior returns. If you'd like to look at how China Publishing & Media Holdings has performed in the past in other metrics, you can view this free graph of China Publishing & Media Holdings' past earnings, revenue and cash flow.

What Does the ROCE Trend For China Publishing & Media Holdings Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 5.3% five years ago, while the business's capital employed increased by 33%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. China Publishing & Media Holdings probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

Our Take On China Publishing & Media Holdings' ROCE

In summary, China Publishing & Media Holdings is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 14% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know about the risks facing China Publishing & Media Holdings, we've discovered 2 warning signs that you should be aware of.

While China Publishing & Media Holdings 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.