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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Sichuan Newsnet Media (Group)Ltd (SZSE:300987) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. To calculate this metric for Sichuan Newsnet Media (Group)Ltd, this is the formula:

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

0.003 = CN¥2.9m ÷ (CN¥1.2b - CN¥173m) (Based on the trailing twelve months to September 2024).

So, Sichuan Newsnet Media (Group)Ltd has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Media industry average of 5.2%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sichuan Newsnet Media (Group)Ltd's ROCE against it's prior returns. If you'd like to look at how Sichuan Newsnet Media (Group)Ltd has performed in the past in other metrics, you can view this free graph of Sichuan Newsnet Media (Group)Ltd's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Sichuan Newsnet Media (Group)Ltd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 9.6% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Sichuan Newsnet Media (Group)Ltd's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Sichuan Newsnet Media (Group)Ltd. These growth trends haven't led to growth returns though, since the stock has fallen 46% over the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Sichuan Newsnet Media (Group)Ltd (of which 2 shouldn't be ignored!) that you should know about.

While Sichuan Newsnet Media (Group)Ltd 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.