Stock Analysis

These Return Metrics Don't Make SinoMedia Holding (HKG:623) Look Too Strong

SEHK:623
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When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within SinoMedia Holding (HKG:623), we weren't too hopeful.

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. Analysts use this formula to calculate it for SinoMedia Holding:

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

0.051 = CN¥84m ÷ (CN¥2.1b - CN¥435m) (Based on the trailing twelve months to December 2020).

Thus, SinoMedia Holding has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Media industry average of 6.9%.

View our latest analysis for SinoMedia Holding

roce
SEHK:623 Return on Capital Employed April 27th 2021

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're interested in investigating SinoMedia Holding's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of SinoMedia Holding's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 11%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on SinoMedia Holding becoming one if things continue as they have.

The Bottom Line On SinoMedia Holding's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Long term shareholders who've owned the stock over the last five years have experienced a 35% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing, we've spotted 3 warning signs facing SinoMedia Holding that you might find interesting.

While SinoMedia Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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