Here's What To Make Of Rizhao Port Jurong's (HKG:6117) Decelerating Rates Of Return

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Rizhao Port Jurong (HKG:6117) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Rizhao Port Jurong is:

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

0.094 = CN¥297m ÷ (CN¥3.5b - CN¥296m) (Based on the trailing twelve months to June 2024).

Thus, Rizhao Port Jurong has an ROCE of 9.4%. On its own that's a low return, but compared to the average of 5.2% generated by the Infrastructure industry, it's much better.

Check out our latest analysis for Rizhao Port Jurong

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 Rizhao Port Jurong's past further, check out this free graph covering Rizhao Port Jurong's past earnings, revenue and cash flow.

So How Is Rizhao Port Jurong's ROCE Trending?

In terms of Rizhao Port Jurong's historical ROCE trend, it doesn't exactly demand attention. The company has employed 42% more capital in the last five years, and the returns on that capital have remained stable at 9.4%. 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.

Our Take On Rizhao Port Jurong's ROCE

In summary, Rizhao Port Jurong has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 24% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a separate note, we've found 1 warning sign for Rizhao Port Jurong you'll probably want to know about.

While Rizhao Port Jurong 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. 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.