If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? 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 indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into China Reform Culture Holdings (SHSE:600636), we weren't too upbeat about how things were going.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on China Reform Culture Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.013 = CN¥34m ÷ (CN¥2.7b - CN¥122m) (Based on the trailing twelve months to March 2022).
Therefore, China Reform Culture Holdings has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 9.8%.
View our latest analysis for China Reform Culture Holdings
SHSE:600636 Return on Capital Employed October 14th 2022
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'd like to look at how China Reform Culture Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
The trend of ROCE at China Reform Culture Holdings is showing some signs of weakness. Unfortunately, returns have declined substantially over the last five years to the 1.3% we see today. What's equally concerning is that the amount of capital deployed in the business has shrunk by 21% over that same period. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.
On a side note, China Reform Culture Holdings has done well to pay down its current liabilities to 4.5% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
Our Take On China Reform Culture Holdings' ROCE
In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Long term shareholders who've owned the stock over the last five years have experienced a 45% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
If you want to continue researching China Reform Culture Holdings, you might be interested to know about the 1 warning sign 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
如果我们希望避免一项正在衰落的业务,哪些趋势可以提前警告我们?一家可能正在衰落的企业通常会表现出两种趋势,一是退货在已动用资本(ROCE)方面,这是下降的,基地资本投入的比例也在下降。这表明该公司从投资中产生的利润正在减少,其总资产正在减少。关于这一点,正在调查中国改革文化控股(上海证券交易所:600636),我们对事情的进展并不太乐观。
什么是资本回报率(ROCE)?
对于那些不确定ROCE是什么的人,它衡量的是一家公司可以从其业务中使用的资本产生的税前利润。中国改革文化控股的这一计算公式为:
已动用资本回报率=息税前收益(EBIT)?(总资产-流动负债)
0.013=CN元3400万?(CN元27亿-CN元1.22亿)(根据截至2022年3月的往绩12个月计算).
所以呢,中国改革文化控股的净资产收益率为1.3%。归根结底,这是一个较低的回报率,表现逊于9.8%的化工行业平均水平。
查看我们对中国改革文化控股的最新分析
上证所:2022年10月14日600636的资本回报率
虽然过去并不代表未来,但了解一家公司历史上的表现是有帮助的,这就是为什么我们有上面的图表。如果你想看看中国改革文化控股过去在其他指标上的表现,你可以看看这个免费过去收益、收入和现金流的图表。
回报趋势如何?
中国改革文化控股的ROCE走势显示出一些疲软迹象。不幸的是,过去五年的回报率大幅下降,降至我们今天看到的1.3%。同样令人担忧的是,在同一时期,该公司的资本额缩水了21%。较低的净资产收益率和较少的资本使用相结合,可能表明一家企业可能面临一些竞争逆风,或者看到其护城河受到侵蚀。通常情况下,表现出这些特征的企业并不是那些倾向于长期成倍增长的企业,因为从统计学上讲,它们已经经历了生命周期的增长阶段。
另一方面,中国改革文化控股有限公司在偿还当前负债至总资产的4.5%方面做得很好。因此,我们可以将其中一些因素与净资产收益率的下降联系起来。更重要的是,这可以降低业务的某些方面的风险,因为现在该公司的供应商或短期债权人为其运营提供的资金减少了。一些人会说,这降低了企业产生净资产收益率的效率,因为它现在用自己的钱为更多的运营提供资金。
我们对中国改革文化控股公司ROCE的看法
简而言之,较低的回报和不断减少的资本投入并不能让我们充满信心。过去五年持有该股的长期股东的投资贬值了45%,因此市场似乎也不喜欢这些趋势。鉴于这些领域的潜在趋势不是很好,我们会考虑将目光投向其他地方。
如果您想继续研究中国改革文化控股公司,您可能有兴趣了解1个警告标志我们的分析发现。
对于那些喜欢投资于稳固的公司,看看这个免费资产负债表稳健、股本回报率高的公司名单。
对这篇文章有什么反馈吗?担心内容吗? 保持联系直接与我们联系。或者,也可以给编辑组发电子邮件,地址是implywallst.com。
本文由Simply Wall St.撰写,具有概括性。我们仅使用不偏不倚的方法提供基于历史数据和分析师预测的评论,我们的文章并不打算作为财务建议。它不构成买卖任何股票的建议,也没有考虑你的目标或你的财务状况。我们的目标是为您带来由基本面数据驱动的长期重点分析。请注意,我们的分析可能不会将最新的对价格敏感的公司公告或定性材料考虑在内。Simply Wall St.对上述任何一只股票都没有持仓。