If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd (SHSE:600831), we don't think it's current trends fit the mold of a multi-bagger.
Understanding Return On Capital Employed (ROCE)
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 Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.012 = CN¥85m ÷ (CN¥12b - CN¥4.9b) (Based on the trailing twelve months to September 2023).
Therefore, Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Media industry average of 4.9%.
View our latest analysis for Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd
Historical performance is a great place to start when researching a stock so above you can see the gauge for Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd's ROCE against it's prior returns. If you're interested in investigating Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
In terms of Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.2% from 4.6% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.
On a separate but related note, it's important to know that Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd has a current liabilities to total assets ratio of 40%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
What We Can Learn From Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd's ROCE
In summary, we're somewhat concerned by Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd's diminishing returns on increasing amounts of capital. Long term shareholders who've owned the stock over the last five years have experienced a 13% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.
If you'd like to know about the risks facing Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd, we've discovered 2 warning signs that you should be aware of.
While Shaanxi Broadcast & TV Network Intermediary(Group)Co.Ltd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.