Returns At Xinhua Winshare Publishing and Media (HKG:811) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So on that note, Xinhua Winshare Publishing and Media (HKG:811) looks quite promising in regards to its trends of return on capital.

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 Xinhua Winshare Publishing and Media:

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

0.097 = CN¥1.0b ÷ (CN¥17b - CN¥6.5b) (Based on the trailing twelve months to March 2021).

Therefore, Xinhua Winshare Publishing and Media has an ROCE of 9.7%. On its own that's a low return, but compared to the average of 2.7% generated by the Retail Distributors industry, it's much better.

View our latest analysis for Xinhua Winshare Publishing and Media

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 Xinhua Winshare Publishing and Media's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Xinhua Winshare Publishing and Media Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 49% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Xinhua Winshare Publishing and Media's ROCE

In summary, it's great to see that Xinhua Winshare Publishing and Media can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Astute investors may have an opportunity here because the stock has declined 18% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching Xinhua Winshare Publishing and Media, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

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This article by Simply Wall St is general in nature. 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.
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