Sichuan Newsnet Media (Group)Ltd (SZSE:300987) Might Be Having Difficulty Using Its Capital Effectively

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Sichuan Newsnet Media (Group)Ltd is:

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

0.003 = CN¥2.9m ÷ (CN¥1.2b - CN¥173m) (Based on the trailing twelve months to September 2024).

So, Sichuan Newsnet Media (Group)Ltd has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Media industry average of 5.2%.

Check out our latest analysis for Sichuan Newsnet Media (Group)Ltd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sichuan Newsnet Media (Group)Ltd's ROCE against it's prior returns. If you're interested in investigating Sichuan Newsnet Media (Group)Ltd's past further, check out this free graph covering Sichuan Newsnet Media (Group)Ltd's past earnings, revenue and cash flow.

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

On the surface, the trend of ROCE at Sichuan Newsnet Media (Group)Ltd doesn't inspire confidence. Over the last five years, returns on capital have decreased to 0.3% from 9.6% five years ago. 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 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. And there could be an opportunity here if other metrics look good too, because the stock has declined 46% in the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Sichuan Newsnet Media (Group)Ltd does come with some risks though, we found 5 warning signs in our investment analysis, and 2 of those shouldn't be ignored...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.