If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, we've noticed some promising trends at Xinhua Winshare Publishing and Media (HKG:811) so let's look a bit deeper.
Understanding 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 Xinhua Winshare Publishing and Media:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = CN¥1.4b ÷ (CN¥23b - CN¥8.9b) (Based on the trailing twelve months to September 2023).
So, Xinhua Winshare Publishing and Media has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 10%.
Above you can see how the current ROCE for Xinhua Winshare Publishing and Media compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Xinhua Winshare Publishing and Media .
The Trend Of ROCE
We like the trends that we're seeing from Xinhua Winshare Publishing and Media. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 66%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line On Xinhua Winshare Publishing and Media's ROCE
To sum it up, Xinhua Winshare Publishing and 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 five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
Xinhua Winshare Publishing and Media does have some risks though, and we've spotted 1 warning sign for Xinhua Winshare Publishing and Media that you might be interested in.
While Xinhua Winshare Publishing and Media 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.