Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. On that note, looking into Heilongjiang Transport Development (SHSE:601188), we weren't too upbeat about how things were going.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Heilongjiang Transport Development:

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

0.018 = CN¥89m ÷ (CN¥5.4b - CN¥334m) (Based on the trailing twelve months to March 2024).

Therefore, Heilongjiang Transport Development has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 5.3%.

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Heilongjiang Transport Development.

What Can We Tell From Heilongjiang Transport Development's ROCE Trend?

We are a bit worried about the trend of returns on capital at Heilongjiang Transport Development. To be more specific, the ROCE was 6.6% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Heilongjiang Transport Development becoming one if things continue as they have.

What We Can Learn From Heilongjiang Transport Development's ROCE

In summary, it's unfortunate that Heilongjiang Transport Development is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 22% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Heilongjiang Transport Development (including 1 which can't be ignored) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com