Some Investors May Be Worried About Mango Excellent Media's (SZSE:300413) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Mango Excellent Media (SZSE:300413) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Mango Excellent Media is:

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

0.058 = CN¥1.3b ÷ (CN¥33b - CN¥9.8b) (Based on the trailing twelve months to September 2024).

So, Mango Excellent Media has an ROCE of 5.8%. In absolute terms, that's a low return but it's around the Entertainment industry average of 5.3%.

See our latest analysis for Mango Excellent Media

In the above chart we have measured Mango Excellent Media's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Mango Excellent Media .

The Trend Of ROCE

On the surface, the trend of ROCE at Mango Excellent Media doesn't inspire confidence. Over the last five years, returns on capital have decreased to 5.8% from 11% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Mango Excellent Media has done well to pay down its current liabilities to 30% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On Mango Excellent Media's ROCE

To conclude, we've found that Mango Excellent Media is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 38% in the last five years. Therefore based on the analysis done in this article, we don't think Mango Excellent Media has the makings of a multi-bagger.

Mango Excellent Media does have some risks, we noticed 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.

While Mango Excellent Media isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.