If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at China Science Publishing & Media (SHSE:601858) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on China Science Publishing & Media is:

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

0.069 = CN¥355m ÷ (CN¥6.6b - CN¥1.4b) (Based on the trailing twelve months to September 2023).

Thus, China Science Publishing & Media has an ROCE of 6.9%. On its own that's a low return, but compared to the average of 4.9% generated by the Media industry, it's much better.

Above you can see how the current ROCE for China Science Publishing & Media compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering China Science Publishing & Media for free.

What Does the ROCE Trend For China Science Publishing & Media Tell Us?

In terms of China Science Publishing & Media's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 6.9% for the last five years, and the capital employed within the business has risen 47% 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.

The Bottom Line On China Science Publishing & Media's ROCE

In summary, China Science Publishing & Media has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 168% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 1 warning sign facing China Science Publishing & Media that you might find interesting.

While China Science 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.