Slowing Rates Of Return At Central China Land MediaLTD (SZSE:000719) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after briefly looking over the numbers, we don't think Central China Land MediaLTD (SZSE:000719) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Central China Land MediaLTD, this is the formula:

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

0.094 = CN¥1.1b ÷ (CN¥17b - CN¥5.8b) (Based on the trailing twelve months to September 2024).

So, Central China Land MediaLTD has an ROCE of 9.4%. 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 Central China Land MediaLTD

Above you can see how the current ROCE for Central China Land MediaLTD 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 Central China Land MediaLTD for free.

So How Is Central China Land MediaLTD's ROCE Trending?

In terms of Central China Land MediaLTD's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.4% for the last five years, and the capital employed within the business has risen 35% 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.

What We Can Learn From Central China Land MediaLTD's ROCE

In conclusion, Central China Land MediaLTD 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 83% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Central China Land MediaLTD does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think 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.