Tianjin Binhai Teda Logistics (Group) (HKG:8348) Will Be Looking To Turn Around Its Returns

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after we looked into Tianjin Binhai Teda Logistics (Group) (HKG:8348), the trends above didn't look too great.

What Is 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)

0.018 = CN¥19m ÷ (CN¥2.0b - CN¥908m) (Based on the trailing twelve months to June 2024).

Therefore, Tianjin Binhai Teda Logistics (Group) has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 7.2%.

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 , check out these free graphs detailing revenue and cash flow performance of Tianjin Binhai Teda Logistics (Group).

What Does the ROCE Trend For Tianjin Binhai Teda Logistics (Group) Tell Us?

In terms of Tianjin Binhai Teda Logistics (Group)'s historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 5.9% 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Tianjin Binhai Teda Logistics (Group) becoming one if things continue as they have.

On a related note, Tianjin Binhai Teda Logistics (Group) has decreased its current liabilities to 46% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE. Either way, they're still at a pretty high level, so we'd like to see them fall further if possible.

The Bottom Line

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. In spite of that, the stock has delivered a 29% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you want to continue researching Tianjin Binhai Teda Logistics (Group), you might be interested to know about the 4 warning signs that our analysis has discovered.

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.