There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Changjiang Publishing & MediaLtd (SHSE:600757), 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. The formula for this calculation on Changjiang Publishing & MediaLtd is:

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

0.073 = CN¥661m ÷ (CN¥14b - CN¥4.5b) (Based on the trailing twelve months to September 2023).

Thus, Changjiang Publishing & MediaLtd has an ROCE of 7.3%. In absolute terms, that's a low return, but it's much better than the Media industry average of 4.9%.

See our latest analysis for Changjiang Publishing & MediaLtd

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're interested in investigating Changjiang Publishing & MediaLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Changjiang Publishing & MediaLtd's ROCE Trend?

In terms of Changjiang Publishing & MediaLtd's historical ROCE trend, it doesn't exactly demand attention. The company has employed 32% more capital in the last five years, and the returns on that capital have remained stable at 7.3%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

As we've seen above, Changjiang Publishing & MediaLtd's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 40% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Changjiang Publishing & MediaLtd does have some risks though, and we've spotted 1 warning sign for Changjiang Publishing & MediaLtd that you might be interested in.

While Changjiang Publishing & MediaLtd 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.