Returns On Capital At CTS International Logistics (SHSE:603128) Have Stalled

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at CTS International Logistics (SHSE:603128) and its ROCE trend, we weren't exactly thrilled.

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 CTS International Logistics, this is the formula:

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%. In absolute terms, that's a low return, but it's much better than the Logistics industry average of 7.0%.

Check out our latest analysis for CTS International Logistics

In the above chart we have measured CTS International Logistics' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for CTS International Logistics .

What Does the ROCE Trend For CTS International Logistics Tell Us?

There are better returns on capital out there than what we're seeing at CTS International Logistics. The company has consistently earned 8.8% for the last five years, and the capital employed within the business has risen 61% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On CTS International Logistics' ROCE

In conclusion, CTS International Logistics has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 4.9% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a separate note, we've found 1 warning sign for CTS International Logistics you'll probably want to know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.