Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating China Science Publishing & Media (SHSE:601858), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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

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

0.066 = CN¥360m ÷ (CN¥7.0b - CN¥1.5b) (Based on the trailing twelve months to March 2024).

Therefore, China Science Publishing & Media has an ROCE of 6.6%. In absolute terms, that's a low return, but it's much better than the Media industry average of 4.3%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for China Science Publishing & Media's ROCE against it's prior returns. If you're interested in investigating China Science Publishing & Media's past further, check out this free graph covering China Science Publishing & Media's past earnings, revenue and cash flow.

So How Is China Science Publishing & Media's ROCE Trending?

On the surface, the trend of ROCE at China Science Publishing & Media doesn't inspire confidence. Around five years ago the returns on capital were 9.2%, but since then they've fallen to 6.6%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, China Science Publishing & Media is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Although the market must be expecting these trends to improve because the stock has gained 50% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching China Science Publishing & Media, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.