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.
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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.
如果我們希望避免一項正在衰落的業務,哪些趨勢可以提前警告我們?一家可能正在衰落的企業通常會表現出兩種趨勢,一是退貨在已動用資本(ROCE)方面,這是下降的,基地資本投入的比例也在下降。這表明該公司從投資中產生的利潤正在減少,其總資產正在減少。關於這一點,正在調查中國改革文化控股(上海證券交易所:600636),我們對事情的進展並不太樂觀。
什麼是資本回報率(ROCE)?
對於那些不確定ROCE是什麼的人,它衡量的是一家公司可以從其業務中使用的資本產生的税前利潤。中國改革文化控股的這一計算公式為:
已動用資本回報率=息税前收益(EBIT)?(總資產-流動負債)
0.013=CN元3400萬?(CN元27億-CN元1.22億)(根據截至2022年3月的往績12個月計算).
所以呢,中國改革文化控股的淨資產收益率為1.3%。歸根結底,這是一個較低的回報率,表現遜於9.8%的化工行業平均水平。
查看我們對中國改革文化控股的最新分析
上證所:2022年10月14日600636的資本回報率
雖然過去並不代表未來,但瞭解一家公司歷史上的表現是有幫助的,這就是為什麼我們有上面的圖表。如果你想看看中國改革文化控股過去在其他指標上的表現,你可以看看這個免費過去收益、收入和現金流的圖表。
回報趨勢如何?
中國改革文化控股的ROCE走勢顯示出一些疲軟跡象。不幸的是,過去五年的回報率大幅下降,降至我們今天看到的1.3%。同樣令人擔憂的是,在同一時期,該公司的資本額縮水了21%。較低的淨資產收益率和較少的資本使用相結合,可能表明一家企業可能面臨一些競爭逆風,或者看到其護城河受到侵蝕。通常情況下,表現出這些特徵的企業並不是那些傾向於長期成倍增長的企業,因為從統計學上講,它們已經經歷了生命週期的增長階段。
另一方面,中國改革文化控股有限公司在償還當前負債至總資產的4.5%方面做得很好。因此,我們可以將其中一些因素與淨資產收益率的下降聯繫起來。更重要的是,這可以降低業務的某些方面的風險,因為現在該公司的供應商或短期債權人為其運營提供的資金減少了。一些人會説,這降低了企業產生淨資產收益率的效率,因為它現在用自己的錢為更多的運營提供資金。
我們對中國改革文化控股公司ROCE的看法
簡而言之,較低的回報和不斷減少的資本投入並不能讓我們充滿信心。過去五年持有該股的長期股東的投資貶值了45%,因此市場似乎也不喜歡這些趨勢。鑑於這些領域的潛在趨勢不是很好,我們會考慮將目光投向其他地方。
如果您想繼續研究中國改革文化控股公司,您可能有興趣瞭解1個警告標誌我們的分析發現。
對於那些喜歡投資於穩固的公司,看看這個免費資產負債表穩健、股本回報率高的公司名單。
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本文由Simply Wall St.撰寫,具有概括性。我們僅使用不偏不倚的方法提供基於歷史數據和分析師預測的評論,我們的文章並不打算作為財務建議。它不構成買賣任何股票的建議,也沒有考慮你的目標或你的財務狀況。我們的目標是為您帶來由基本面數據驅動的長期重點分析。請注意,我們的分析可能不會將最新的對價格敏感的公司公告或定性材料考慮在內。Simply Wall St.對上述任何一隻股票都沒有持倉。