What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Hunan TV & Broadcast Intermediary (SZSE:000917) looks quite promising in regards to its trends of return on capital.
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. The formula for this calculation on Hunan TV & Broadcast Intermediary is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.013 = CN¥163m ÷ (CN¥17b - CN¥4.7b) (Based on the trailing twelve months to March 2023).
Therefore, Hunan TV & Broadcast Intermediary has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Media industry average of 4.3%.
Check out our latest analysis for Hunan TV & Broadcast Intermediary
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'd like to look at how Hunan TV & Broadcast Intermediary has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Hunan TV & Broadcast Intermediary Tell Us?
It's great to see that Hunan TV & Broadcast Intermediary has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 1.3% on their capital employed. In regards to capital employed, Hunan TV & Broadcast Intermediary is using 30% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.
What We Can Learn From Hunan TV & Broadcast Intermediary's ROCE
In the end, Hunan TV & Broadcast Intermediary has proven it's capital allocation skills are good with those higher returns from less amount of capital. Considering the stock has delivered 21% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.
One more thing to note, we've identified 1 warning sign with Hunan TV & Broadcast Intermediary and understanding this should be part of your investment process.
While Hunan TV & Broadcast Intermediary isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.