There Are Reasons To Feel Uneasy About Zhejiang Meorient Commerce Exhibition's (SZSE:300795) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So while Zhejiang Meorient Commerce Exhibition (SZSE:300795) has a high ROCE right now, lets see what we can decipher from how returns are changing.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Zhejiang Meorient Commerce Exhibition:

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

0.25 = CN¥167m ÷ (CN¥882m - CN¥220m) (Based on the trailing twelve months to June 2024).

So, Zhejiang Meorient Commerce Exhibition has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 4.1% earned by companies in a similar industry.

View our latest analysis for Zhejiang Meorient Commerce Exhibition

Above you can see how the current ROCE for Zhejiang Meorient Commerce Exhibition 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 Zhejiang Meorient Commerce Exhibition for free.

So How Is Zhejiang Meorient Commerce Exhibition's ROCE Trending?

In terms of Zhejiang Meorient Commerce Exhibition's historical ROCE movements, the trend isn't fantastic. To be more specific, while the ROCE is still high, it's fallen from 33% where it was five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Zhejiang Meorient Commerce Exhibition's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Zhejiang Meorient Commerce Exhibition. In light of this, the stock has only gained 31% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Zhejiang Meorient Commerce Exhibition does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is significant...

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.