Investors Met With Slowing Returns on Capital At Guangdong Great River Smarter Logistics (SZSE:002930)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. 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 Guangdong Great River Smarter Logistics (SZSE:002930) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Guangdong Great River Smarter Logistics is:

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

0.072 = CN¥617m ÷ (CN¥10b - CN¥1.6b) (Based on the trailing twelve months to March 2024).

Thus, Guangdong Great River Smarter Logistics has an ROCE of 7.2%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 5.3%.

View our latest analysis for Guangdong Great River Smarter Logistics

Above you can see how the current ROCE for Guangdong Great River Smarter Logistics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Guangdong Great River Smarter Logistics for free.

How Are Returns Trending?

The returns on capital haven't changed much for Guangdong Great River Smarter Logistics in recent years. Over the past five years, ROCE has remained relatively flat at around 7.2% and the business has deployed 249% more capital into its operations. 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.

In Conclusion...

Long story short, while Guangdong Great River Smarter Logistics has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 18% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Guangdong Great River Smarter Logistics (including 1 which is a bit concerning) .

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.