Return Trends At Fujian Expressway DevelopmentLtd (SHSE:600033) Aren't Appealing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Fujian Expressway DevelopmentLtd (SHSE:600033) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. To calculate this metric for Fujian Expressway DevelopmentLtd, this is the formula:

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

0.10 = CN¥1.6b ÷ (CN¥17b - CN¥1.8b) (Based on the trailing twelve months to June 2024).

Thus, Fujian Expressway DevelopmentLtd has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Infrastructure industry average of 5.1% it's much better.

View 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're interested in investigating Fujian Expressway DevelopmentLtd's past further, check out this free graph covering Fujian Expressway DevelopmentLtd's past earnings, revenue and cash flow.

So How Is Fujian Expressway DevelopmentLtd's ROCE Trending?

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. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Fujian Expressway DevelopmentLtd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On 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. Unsurprisingly, the stock has only gained 40% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing to note, we've identified 1 warning sign with Fujian Expressway DevelopmentLtd and understanding it should be part of your investment process.

While Fujian Expressway DevelopmentLtd 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.