What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Heilongjiang Publishing & Media's (SHSE:605577) returns on capital, so let's have a 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. The formula for this calculation on Heilongjiang Publishing & Media is:

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

0.10 = CN¥457m ÷ (CN¥5.5b - CN¥968m) (Based on the trailing twelve months to September 2023).

Therefore, Heilongjiang Publishing & Media has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 4.8% generated by the Media industry.

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 Heilongjiang Publishing & Media's past further, check out this free graph covering Heilongjiang Publishing & Media's past earnings, revenue and cash flow.

So How Is Heilongjiang Publishing & Media's ROCE Trending?

Investors would be pleased with what's happening at Heilongjiang Publishing & Media. The data shows that returns on capital have increased substantially over the last five years to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 41% more capital is being employed now too. So we're very much inspired by what we're seeing at Heilongjiang Publishing & Media thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Heilongjiang Publishing & Media has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 89% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Heilongjiang Publishing & Media can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Heilongjiang Publishing & Media and understanding it should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.