Returns On Capital At TangShan Port GroupLtd (SHSE:601000) Have Stalled

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Although, when we looked at TangShan Port GroupLtd (SHSE:601000), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for TangShan Port GroupLtd, this is the formula:

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

0.092 = CN¥2.1b ÷ (CN¥24b - CN¥1.6b) (Based on the trailing twelve months to March 2024).

Thus, TangShan Port GroupLtd has an ROCE of 9.2%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 5.3%.

View our latest analysis for TangShan Port GroupLtd

Above you can see how the current ROCE for TangShan Port GroupLtd 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 TangShan Port GroupLtd for free.

What Can We Tell From TangShan Port GroupLtd's ROCE Trend?

Things have been pretty stable at TangShan Port GroupLtd, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if TangShan Port GroupLtd doesn't end up being a multi-bagger in a few years time.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 6.4% of total assets, is good to see from a business owner's perspective. 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.

Our Take On TangShan Port GroupLtd's ROCE

We can conclude that in regards to TangShan Port GroupLtd's returns on capital employed and the trends, there isn't much change to report on. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 160% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing to note, we've identified 1 warning sign with TangShan Port GroupLtd and understanding this should be part of your investment process.

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.

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