The Return Trends At Tianjin Binhai Teda Logistics (Group) (HKG:8348) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Tianjin Binhai Teda Logistics (Group) (HKG:8348) so let's look a bit deeper.

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. To calculate this metric for Tianjin Binhai Teda Logistics (Group), this is the formula:

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

0.062 = CN¥69m ÷ (CN¥2.1b - CN¥978m) (Based on the trailing twelve months to March 2022).

So, Tianjin Binhai Teda Logistics (Group) has an ROCE of 6.2%. Ultimately, that's a low return and it under-performs the Logistics industry average of 16%.

See our latest analysis for Tianjin Binhai Teda Logistics (Group)

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 want to delve into the historical earnings, revenue and cash flow of Tianjin Binhai Teda Logistics (Group), check out these free graphs here.

The Trend Of ROCE

Tianjin Binhai Teda Logistics (Group) is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 61% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 47%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

In Conclusion...

To sum it up, Tianjin Binhai Teda Logistics (Group) is collecting higher returns from the same amount of capital, and that's impressive. Although the company may be facing some issues elsewhere since the stock has plunged 75% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

Tianjin Binhai Teda Logistics (Group) does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is concerning...

While Tianjin Binhai Teda Logistics (Group) 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.