Ningbo Zhoushan Port (SHSE:601018) Has More To Do To Multiply In Value Going Forward

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Ningbo Zhoushan Port (SHSE:601018) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Ningbo Zhoushan Port, this is the formula:

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

0.074 = CN¥6.9b ÷ (CN¥115b - CN¥21b) (Based on the trailing twelve months to December 2024).

Therefore, Ningbo Zhoushan Port has an ROCE of 7.4%. On its own that's a low return, but compared to the average of 4.9% generated by the Infrastructure industry, it's much better.

View our latest analysis for Ningbo Zhoushan Port

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ningbo Zhoushan Port's ROCE against it's prior returns. If you'd like to look at how Ningbo Zhoushan Port has performed in the past in other metrics, you can view this free graph of Ningbo Zhoushan Port's past earnings, revenue and cash flow.

So How Is Ningbo Zhoushan Port's ROCE Trending?

In terms of Ningbo Zhoushan Port's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 7.4% for the last five years, and the capital employed within the business has risen 82% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Ningbo Zhoushan Port has done well to reduce current liabilities to 18% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line On Ningbo Zhoushan Port's ROCE

In summary, Ningbo Zhoushan Port has simply been reinvesting capital and generating the same low rate of return as before. And investors may be recognizing these trends since the stock has only returned a total of 16% 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.

One more thing, we've spotted 1 warning sign facing Ningbo Zhoushan Port that you might find interesting.

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.