Investors Could Be Concerned With GuangDong GenSho LogisticsLTD's (SHSE:603813) Returns On Capital

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at GuangDong GenSho LogisticsLTD (SHSE:603813) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for GuangDong GenSho LogisticsLTD:

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

0.0086 = CN¥9.5m ÷ (CN¥1.3b - CN¥155m) (Based on the trailing twelve months to September 2023).

Thus, GuangDong GenSho LogisticsLTD has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Transportation industry average of 3.8%.

Check out our latest analysis for GuangDong GenSho LogisticsLTD

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how GuangDong GenSho LogisticsLTD has performed in the past in other metrics, you can view this free graph of GuangDong GenSho LogisticsLTD's past earnings, revenue and cash flow.

The Trend Of ROCE

On the surface, the trend of ROCE at GuangDong GenSho LogisticsLTD doesn't inspire confidence. To be more specific, ROCE has fallen from 9.1% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On GuangDong GenSho LogisticsLTD's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for GuangDong GenSho LogisticsLTD have fallen, meanwhile the business is employing more capital than it was five years ago. Investors haven't taken kindly to these developments, since the stock has declined 40% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Like most companies, GuangDong GenSho LogisticsLTD does come with some risks, and we've found 3 warning signs that you should be aware of.

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.