Beijing Bashi Media's (SHSE:600386) Returns On Capital Tell Us There Is Reason To Feel Uneasy

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into Beijing Bashi Media (SHSE:600386), we weren't too upbeat about how things were going.

Understanding Return On Capital Employed (ROCE)

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 Beijing Bashi Media:

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

0.044 = CN¥132m ÷ (CN¥4.6b - CN¥1.5b) (Based on the trailing twelve months to June 2024).

So, Beijing Bashi Media has an ROCE of 4.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.4%.

Check out our latest analysis for Beijing Bashi Media

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

How Are Returns Trending?

In terms of Beijing Bashi Media's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 9.5% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Beijing Bashi Media becoming one if things continue as they have.

The Bottom Line On Beijing Bashi Media's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to know some of the risks facing Beijing Bashi Media we've found 4 warning signs (2 are a bit unpleasant!) that you should be aware of before investing here.

While Beijing Bashi Media may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.