Be Wary Of Sichuan Newsnet Media (Group)Ltd (SZSE:300987) And Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Sichuan Newsnet Media (Group)Ltd (SZSE:300987) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Sichuan Newsnet Media (Group)Ltd:

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

0.0053 = CN¥4.4m ÷ (CN¥932m - CN¥106m) (Based on the trailing twelve months to March 2024).

Thus, Sichuan Newsnet Media (Group)Ltd has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Media industry average of 4.0%.

View our latest analysis for Sichuan Newsnet Media (Group)Ltd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Sichuan Newsnet Media (Group)Ltd.

So How Is Sichuan Newsnet Media (Group)Ltd's ROCE Trending?

In terms of Sichuan Newsnet Media (Group)Ltd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 10.0%, but since then they've fallen to 0.5%. 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. If these investments prove successful, this can bode very well for long term stock performance.

In Conclusion...

While returns have fallen for Sichuan Newsnet Media (Group)Ltd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These growth trends haven't led to growth returns though, since the stock has fallen 65% over the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing: We've identified 3 warning signs with Sichuan Newsnet Media (Group)Ltd (at least 2 which shouldn't be ignored) , and understanding them would certainly be useful.

While Sichuan Newsnet Media (Group)Ltd 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.