CMST DevelopmentLtd (SHSE:600787) Shareholders Will Want The ROCE Trajectory To Continue

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at CMST DevelopmentLtd (SHSE:600787) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on CMST DevelopmentLtd is:

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

0.032 = CN¥568m ÷ (CN¥24b - CN¥5.9b) (Based on the trailing twelve months to September 2024).

So, CMST DevelopmentLtd has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 7.5%.

View our latest analysis for CMST DevelopmentLtd

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

What Can We Tell From CMST DevelopmentLtd's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 3.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 27% more capital is being employed now too. So we're very much inspired by what we're seeing at CMST DevelopmentLtd thanks to its ability to profitably reinvest capital.

What We Can Learn From CMST DevelopmentLtd's ROCE

All in all, it's terrific to see that CMST DevelopmentLtd is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 30% to shareholders. So with that in mind, we think the stock deserves further research.

On a final note, we've found 2 warning signs for CMST DevelopmentLtd that we think you should be aware of.

While CMST 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.