The Returns At TianJin 712 Communication & Broadcasting (SHSE:603712) Aren't Growing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating TianJin 712 Communication & Broadcasting (SHSE:603712), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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 TianJin 712 Communication & Broadcasting is:

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

0.063 = CN¥358m ÷ (CN¥9.5b - CN¥3.9b) (Based on the trailing twelve months to March 2024).

So, TianJin 712 Communication & Broadcasting has an ROCE of 6.3%. On its own that's a low return, but compared to the average of 4.2% generated by the Communications industry, it's much better.

Check out our latest analysis for TianJin 712 Communication & Broadcasting

Above you can see how the current ROCE for TianJin 712 Communication & Broadcasting compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering TianJin 712 Communication & Broadcasting for free.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for TianJin 712 Communication & Broadcasting in recent years. The company has consistently earned 6.3% for the last five years, and the capital employed within the business has risen 137% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, TianJin 712 Communication & Broadcasting has done well to reduce current liabilities to 41% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 41%, some of that risk is still prevalent.

The Bottom Line On TianJin 712 Communication & Broadcasting's ROCE

Long story short, while TianJin 712 Communication & Broadcasting has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 8.5% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing TianJin 712 Communication & Broadcasting, we've discovered 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.