Slowing Rates Of Return At Zhuhai Winbase International Chemical Tank TerminalLtd (SZSE:002492) Leave Little Room For Excitement

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Zhuhai Winbase International Chemical Tank TerminalLtd (SZSE:002492) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Zhuhai Winbase International Chemical Tank TerminalLtd, this is the formula:

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

0.064 = CN¥118m ÷ (CN¥2.0b - CN¥208m) (Based on the trailing twelve months to September 2023).

Therefore, Zhuhai Winbase International Chemical Tank TerminalLtd has an ROCE of 6.4%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 5.2%.

Check out our latest analysis for Zhuhai Winbase International Chemical Tank TerminalLtd

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 Zhuhai Winbase International Chemical Tank TerminalLtd has performed in the past in other metrics, you can view this free graph of Zhuhai Winbase International Chemical Tank TerminalLtd's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Zhuhai Winbase International Chemical Tank TerminalLtd. The company has consistently earned 6.4% for the last five years, and the capital employed within the business has risen 33% in that time. 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, Zhuhai Winbase International Chemical Tank TerminalLtd's returns on capital haven't increased but it is reinvesting in the business. And in the last five years, the stock has given away 19% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Zhuhai Winbase International Chemical Tank TerminalLtd has the makings of a multi-bagger.

Zhuhai Winbase International Chemical Tank TerminalLtd does have some risks though, and we've spotted 1 warning sign for Zhuhai Winbase International Chemical Tank TerminalLtd that you might be interested in.

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.