Will the Promising Trends At China Chuanglian Education Financial Group (HKG:2371) Continue?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, we've noticed some promising trends at China Chuanglian Education Financial Group (HKG:2371) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on China Chuanglian Education Financial Group is:

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

0.058 = CN¥21m ÷ (CN¥408m - CN¥50m) (Based on the trailing twelve months to June 2020).

So, China Chuanglian Education Financial Group has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Consumer Services industry average of 9.3%.

See our latest analysis for China Chuanglian Education Financial Group

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 want to delve into the historical earnings, revenue and cash flow of China Chuanglian Education Financial Group, check out these free graphs here.

So How Is China Chuanglian Education Financial Group's ROCE Trending?

Like most people, we're pleased that China Chuanglian Education Financial Group is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 5.8% on their capital employed. Additionally, the business is utilizing 49% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. China Chuanglian Education Financial Group could be selling under-performing assets since the ROCE is improving.

In Conclusion...

In a nutshell, we're pleased to see that China Chuanglian Education Financial Group has been able to generate higher returns from less capital. Although the company may be facing some issues elsewhere since the stock has plunged 85% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

On a separate note, we've found 2 warning signs for China Chuanglian Education Financial Group you'll probably want to know about.

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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