If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Heilongjiang Publishing & Media (SHSE:605577) and its ROCE trend, we weren't exactly thrilled.

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 Heilongjiang Publishing & Media is:

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

0.029 = CN¥137m ÷ (CN¥5.6b - CN¥916m) (Based on the trailing twelve months to September 2024).

Thus, Heilongjiang Publishing & Media has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Media industry average of 5.2%.

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 Heilongjiang Publishing & Media.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Heilongjiang Publishing & Media. The company has consistently earned 2.9% for the last five years, and the capital employed within the business has risen 42% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In conclusion, Heilongjiang Publishing & Media has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 12% over the last three years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know about the risks facing Heilongjiang Publishing & Media, we've discovered 1 warning sign that you should be aware of.

While Heilongjiang Publishing & Media isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.