Returns On Capital At Xinhua Winshare Publishing and Media (HKG:811) Have Stalled

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. However, after investigating Xinhua Winshare Publishing and Media (HKG:811), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Xinhua Winshare Publishing and Media, this is the formula:

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

0.097 = CN¥1.3b ÷ (CN¥21b - CN¥7.2b) (Based on the trailing twelve months to June 2023).

Thus, Xinhua Winshare Publishing and Media has an ROCE of 9.7%. On its own, that's a low figure but it's around the 8.6% average generated by the Media industry.

Check out our latest analysis for Xinhua Winshare Publishing and Media

In the above chart we have measured Xinhua Winshare Publishing and Media's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Xinhua Winshare Publishing and Media.

The Trend Of ROCE

The returns on capital haven't changed much for Xinhua Winshare Publishing and Media in recent years. Over the past five years, ROCE has remained relatively flat at around 9.7% and the business has deployed 68% more capital into its operations. 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

Long story short, while Xinhua Winshare Publishing and Media has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 74% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a separate note, we've found 1 warning sign for Xinhua Winshare Publishing and Media you'll probably want to know about.

While Xinhua Winshare Publishing and Media isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.