The Returns On Capital At Wanda Film Holding (SZSE:002739) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. In light of that, when we looked at Wanda Film Holding (SZSE:002739) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Wanda Film Holding is:

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

0.056 = CN¥1.0b ÷ (CN¥26b - CN¥8.5b) (Based on the trailing twelve months to September 2023).

Therefore, Wanda Film Holding has an ROCE of 5.6%. In absolute terms, that's a low return, but it's much better than the Entertainment industry average of 3.8%.

Check out our latest analysis for Wanda Film Holding

Above you can see how the current ROCE for Wanda Film Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Wanda Film Holding .

The Trend Of ROCE

When we looked at the ROCE trend at Wanda Film Holding, we didn't gain much confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 5.6%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

While returns have fallen for Wanda Film Holding in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 49% in the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Wanda Film Holding could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 002739 on our platform quite valuable.

While Wanda Film Holding 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.