Stock Analysis

The Returns At Rizhao Port Jurong (HKG:6117) Provide Us With Signs Of What's To Come

SEHK:6117
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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?

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. The formula for this calculation on Rizhao Port Jurong is:

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

0.093 = CN¥226m ÷ (CN¥2.6b - CN¥161m) (Based on the trailing twelve months to June 2020).

Therefore, Rizhao Port Jurong has an ROCE of 9.3%. On its own that's a low return, but compared to the average of 5.6% generated by the Infrastructure industry, it's much better.

See our latest analysis for Rizhao Port Jurong

roce
SEHK:6117 Return on Capital Employed December 11th 2020

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

How Are Returns Trending?

The returns on capital haven't changed much for Rizhao Port Jurong in recent years. The company has consistently earned 9.3% for the last three years, and the capital employed within the business has risen 58% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From 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. And in the last year, the stock has given away 29% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd 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.

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. 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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