Returns On Capital Signal Tricky Times Ahead For CITIC Offshore Helicopter (SZSE:000099)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think CITIC Offshore Helicopter (SZSE:000099) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for CITIC Offshore Helicopter, this is the formula:

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

0.056 = CN¥334m ÷ (CN¥6.6b - CN¥576m) (Based on the trailing twelve months to September 2024).

So, CITIC Offshore Helicopter has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Logistics industry average of 7.5%.

Check out our latest analysis for CITIC Offshore Helicopter

Above you can see how the current ROCE for CITIC Offshore Helicopter compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for CITIC Offshore Helicopter .

How Are Returns Trending?

On the surface, the trend of ROCE at CITIC Offshore Helicopter doesn't inspire confidence. Over the last five years, returns on capital have decreased to 5.6% from 7.6% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, CITIC Offshore Helicopter has done well to pay down its current liabilities to 8.8% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line On CITIC Offshore Helicopter's ROCE

To conclude, we've found that CITIC Offshore Helicopter is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 296% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

While CITIC Offshore Helicopter doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 000099 on our platform.

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.