Investors Met With Slowing Returns on Capital At Fujian Expressway DevelopmentLtd (SHSE:600033)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Fujian Expressway DevelopmentLtd (SHSE:600033), it didn't seem to tick all of these boxes.

Understanding 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 Fujian Expressway DevelopmentLtd is:

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

0.10 = CN¥1.6b ÷ (CN¥17b - CN¥1.7b) (Based on the trailing twelve months to September 2024).

So, Fujian Expressway DevelopmentLtd has an ROCE of 10.0%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 4.9%.

Check out our latest analysis for Fujian Expressway DevelopmentLtd

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 Fujian Expressway DevelopmentLtd.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Fujian Expressway DevelopmentLtd's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Fujian Expressway DevelopmentLtd to be a multi-bagger going forward.

What We Can Learn From Fujian Expressway DevelopmentLtd's ROCE

We can conclude that in regards to Fujian Expressway DevelopmentLtd's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 59% 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.

On a final note, we've found 1 warning sign for Fujian Expressway DevelopmentLtd that we think you should be aware of.

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.