Beibu Gulf Port (SZSE:000582) Will Be Hoping To Turn Its Returns On Capital Around

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Having said that, from a first glance at Beibu Gulf Port (SZSE:000582) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Beibu Gulf Port is:

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

0.066 = CN¥1.7b ÷ (CN¥32b - CN¥6.6b) (Based on the trailing twelve months to September 2023).

Therefore, Beibu Gulf Port has an ROCE of 6.6%. On its own that's a low return, but compared to the average of 5.2% generated by the Infrastructure industry, it's much better.

View our latest analysis for Beibu Gulf Port

In the above chart we have measured Beibu Gulf Port's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Beibu Gulf Port for free.

What Does the ROCE Trend For Beibu Gulf Port Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 9.6% five years ago, while the business's capital employed increased by 111%. That being said, Beibu Gulf Port raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Beibu Gulf Port's earnings and if they change as a result from the capital raise. Also, we found that by looking at the company's latest EBIT, the figure is within 10% of the previous year's EBIT so you can basically assign the ROCE drop primarily to that capital raise.

The Bottom Line

To conclude, we've found that Beibu Gulf Port is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 0.1% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to know some of the risks facing Beibu Gulf Port we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.