If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at San Yang Ma (Chongqing) LogisticsLtd (SZSE:001317) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for San Yang Ma (Chongqing) LogisticsLtd:

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

0.011 = CN¥12m ÷ (CN¥1.4b - CN¥368m) (Based on the trailing twelve months to September 2023).

So, San Yang Ma (Chongqing) LogisticsLtd has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Logistics industry average of 7.1%.

Check out our latest analysis for San Yang Ma (Chongqing) LogisticsLtd

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 San Yang Ma (Chongqing) LogisticsLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From San Yang Ma (Chongqing) LogisticsLtd's ROCE Trend?

On the surface, the trend of ROCE at San Yang Ma (Chongqing) LogisticsLtd doesn't inspire confidence. Around five years ago the returns on capital were 30%, but since then they've fallen to 1.1%. 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.

On a side note, San Yang Ma (Chongqing) LogisticsLtd has done well to pay down its current liabilities to 27% 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. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On San Yang Ma (Chongqing) LogisticsLtd'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 San Yang Ma (Chongqing) LogisticsLtd. And the stock has followed suit returning a meaningful 11% to shareholders over the last year. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you want to know some of the risks facing San Yang Ma (Chongqing) LogisticsLtd we've found 3 warning signs (1 is significant!) that you should be aware of before investing here.

While San Yang Ma (Chongqing) LogisticsLtd 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.