Did you know there are some financial metrics that can provide clues of a potential 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Qinhuangdao Port (HKG:3369) and its ROCE trend, we weren't exactly thrilled.
What Is 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. To calculate this metric for Qinhuangdao Port, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.067 = CN¥1.7b ÷ (CN¥28b - CN¥3.0b) (Based on the trailing twelve months to March 2024).
Thus, Qinhuangdao Port has an ROCE of 6.7%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 6.0%.
In the above chart we have measured Qinhuangdao Port's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Qinhuangdao Port .
So How Is Qinhuangdao Port's ROCE Trending?
There hasn't been much to report for Qinhuangdao Port's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Qinhuangdao Port doesn't end up being a multi-bagger in a few years time.
The Bottom Line On Qinhuangdao Port's ROCE
We can conclude that in regards to Qinhuangdao Port's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 77% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
Qinhuangdao Port does have some risks though, and we've spotted 1 warning sign for Qinhuangdao Port that you might be interested in.
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.
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