Here's What's Concerning About Wuxi Commercial Mansion Grand Orient's (SHSE:600327) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Wuxi Commercial Mansion Grand Orient (SHSE:600327), it didn't seem to tick all of these boxes.

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 Wuxi Commercial Mansion Grand Orient:

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

0.026 = CN¥105m ÷ (CN¥5.9b - CN¥1.8b) (Based on the trailing twelve months to September 2023).

Therefore, Wuxi Commercial Mansion Grand Orient has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 4.9%.

View our latest analysis for Wuxi Commercial Mansion Grand Orient

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 Wuxi Commercial Mansion Grand Orient.

So How Is Wuxi Commercial Mansion Grand Orient's ROCE Trending?

On the surface, the trend of ROCE at Wuxi Commercial Mansion Grand Orient doesn't inspire confidence. Around five years ago the returns on capital were 11%, but since then they've fallen to 2.6%. However it looks like Wuxi Commercial Mansion Grand Orient might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by Wuxi Commercial Mansion Grand Orient's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 47% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know about the risks facing Wuxi Commercial Mansion Grand Orient, we've discovered 3 warning signs that you should be aware of.

While Wuxi Commercial Mansion Grand Orient 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.