The Trend Of High Returns At Focus Media Information Technology (SZSE:002027) Has Us Very Interested

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Focus Media Information Technology's (SZSE:002027) look very promising so lets take a look.

Understanding 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. Analysts use this formula to calculate it for Focus Media Information Technology:

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

0.28 = CN¥4.9b ÷ (CN¥24b - CN¥6.2b) (Based on the trailing twelve months to June 2024).

So, Focus Media Information Technology has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Media industry average of 4.1%.

Check out our latest analysis for Focus Media Information Technology

Above you can see how the current ROCE for Focus Media Information Technology 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 Focus Media Information Technology for free.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Focus Media Information Technology. Over the last five years, returns on capital employed have risen substantially to 28%. The amount of capital employed has increased too, by 23%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Focus Media Information Technology's ROCE

To sum it up, Focus Media Information Technology has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 25% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing, we've spotted 1 warning sign facing Focus Media Information Technology that you might find interesting.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.