Slowing Rates Of Return At Xinhua Winshare Publishing and Media (HKG:811) Leave Little Room For Excitement

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Having said that, from a first glance at Xinhua Winshare Publishing and Media (HKG:811) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Xinhua Winshare Publishing and Media is:

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

0.097 = CN¥1.4b ÷ (CN¥22b - CN¥7.9b) (Based on the trailing twelve months to December 2023).

Thus, Xinhua Winshare Publishing and Media has an ROCE of 9.7%. In absolute terms, that's a low return, but it's much better than the Media industry average of 6.1%.

See 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're interested, you can view the analysts predictions in our free analyst report for Xinhua Winshare Publishing and Media .

What The Trend Of ROCE Can Tell Us

In terms of Xinhua Winshare Publishing and Media's historical ROCE trend, it doesn't exactly demand attention. The company has employed 64% more capital in the last five years, and the returns on that capital have remained stable at 9.7%. 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

In conclusion, Xinhua Winshare Publishing and Media has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 89% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Xinhua Winshare Publishing and Media (of which 1 is a bit unpleasant!) that you should know about.

While Xinhua Winshare Publishing and Media 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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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.