Stock Analysis

Changan Minsheng APLL Logistics (HKG:1292) Has Some Difficulty Using Its Capital Effectively

SEHK:1292
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When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after we looked into Changan Minsheng APLL Logistics (HKG:1292), the trends above didn't look too great.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Changan Minsheng APLL Logistics:

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

0.023 = CN¥48m ÷ (CN¥4.4b - CN¥2.3b) (Based on the trailing twelve months to June 2021).

Therefore, Changan Minsheng APLL Logistics has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 14%.

See our latest analysis for Changan Minsheng APLL Logistics

roce
SEHK:1292 Return on Capital Employed January 17th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for Changan Minsheng APLL Logistics' ROCE against it's prior returns. If you're interested in investigating Changan Minsheng APLL Logistics' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Changan Minsheng APLL Logistics' ROCE Trend?

In terms of Changan Minsheng APLL Logistics' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 15% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Changan Minsheng APLL Logistics to turn into a multi-bagger.

Another thing to note, Changan Minsheng APLL Logistics has a high ratio of current liabilities to total assets of 52%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors haven't taken kindly to these developments, since the stock has declined 64% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Changan Minsheng APLL Logistics (including 1 which is a bit unpleasant) .

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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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.