Tianjin Binhai Teda Logistics (Group) (HKG:8348) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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.

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. 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)

0.072 = CN¥78m ÷ (CN¥2.0b - CN¥958m) (Based on the trailing twelve months to September 2022).

So, Tianjin Binhai Teda Logistics (Group) has an ROCE of 7.2%. Ultimately, that's a low return and it under-performs the Logistics industry average of 12%.

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

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tianjin Binhai Teda Logistics (Group)'s ROCE against it's prior returns. 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.

So How Is Tianjin Binhai Teda Logistics (Group)'s ROCE Trending?

Tianjin Binhai Teda Logistics (Group) has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 52% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

One more thing to note, Tianjin Binhai Teda Logistics (Group) has decreased current liabilities to 47% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. 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. Astute investors may have an opportunity here because the stock has declined 70% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing: We've identified 3 warning signs with Tianjin Binhai Teda Logistics (Group) (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

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.