Sichuan Newsnet Media (Group)Ltd's (SZSE:300987) Returns On Capital Not Reflecting Well On The Business

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Sichuan Newsnet Media (Group)Ltd (SZSE:300987) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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What Is 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. 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)

0.025 = CN¥24m ÷ (CN¥1.2b - CN¥222m) (Based on the trailing twelve months to December 2024).

Thus, Sichuan Newsnet Media (Group)Ltd has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Media industry average of 4.6%.

View 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Sichuan Newsnet Media (Group)Ltd.

How Are Returns Trending?

On the surface, the trend of ROCE at Sichuan Newsnet Media (Group)Ltd doesn't inspire confidence. Around five years ago the returns on capital were 9.5%, but since then they've fallen to 2.5%. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Sichuan Newsnet Media (Group)Ltd's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Sichuan Newsnet Media (Group)Ltd is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 22% over the last three years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing: We've identified 3 warning signs with Sichuan Newsnet Media (Group)Ltd (at least 1 which is significant) , and understanding them would certainly be useful.

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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.