What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Chinese Universe Publishing and Media Group (SHSE:600373) and its ROCE trend, we weren't exactly thrilled.

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 Chinese Universe Publishing and Media Group is:

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

0.074 = CN¥1.5b ÷ (CN¥29b - CN¥8.5b) (Based on the trailing twelve months to December 2023).

So, Chinese Universe Publishing and Media Group has an ROCE of 7.4%. In absolute terms, that's a low return, but it's much better than the Media industry average of 4.0%.

In the above chart we have measured Chinese Universe Publishing and Media Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Chinese Universe Publishing and Media Group .

So How Is Chinese Universe Publishing and Media Group's ROCE Trending?

When we looked at the ROCE trend at Chinese Universe Publishing and Media Group, we didn't gain much confidence. Around five years ago the returns on capital were 10%, but since then they've fallen to 7.4%. However it looks like Chinese Universe Publishing and Media Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Chinese Universe Publishing and Media Group's ROCE

To conclude, we've found that Chinese Universe Publishing and Media Group is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 33% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a final note, we've found 1 warning sign for Chinese Universe Publishing and Media Group that we think you should be aware of.

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

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com