Return Trends At CTS International Logistics (SHSE:603128) Aren't Appealing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 CTS International Logistics (SHSE:603128), it didn't seem to tick all of these boxes.

What Is 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. Analysts use this formula to calculate it for CTS International Logistics:

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

0.088 = CN¥570m ÷ (CN¥9.4b - CN¥2.9b) (Based on the trailing twelve months to March 2024).

Thus, CTS International Logistics has an ROCE of 8.8%. On its own that's a low return, but compared to the average of 7.3% generated by the Logistics industry, it's much better.

View our latest analysis for CTS International Logistics

Above you can see how the current ROCE for CTS International Logistics 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 CTS International Logistics for free.

So How Is CTS International Logistics' ROCE Trending?

In terms of CTS International Logistics' historical ROCE trend, it doesn't exactly demand attention. The company has employed 61% more capital in the last five years, and the returns on that capital have remained stable at 8.8%. 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.

The Bottom Line

As we've seen above, CTS International Logistics' returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 1.6% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to continue researching CTS International Logistics, you might be interested to know about the 1 warning sign that our analysis has discovered.

While CTS International Logistics may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.