What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Rizhao Port Jurong (HKG:6117), it didn't seem to tick all of these boxes.
Our free stock report includes 1 warning sign investors should be aware of before investing in Rizhao Port Jurong. Read for free now.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 Rizhao Port Jurong is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.09 = CN¥290m ÷ (CN¥3.5b - CN¥312m) (Based on the trailing twelve months to December 2024).
Therefore, Rizhao Port Jurong has an ROCE of 9.0%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 5.2%.
View our latest analysis for Rizhao Port Jurong
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 Rizhao Port Jurong's past further, check out this free graph covering Rizhao Port Jurong's past earnings, revenue and cash flow.
How Are Returns Trending?
In terms of Rizhao Port Jurong's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.0% for the last five years, and the capital employed within the business has risen 33% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
What We Can Learn From Rizhao Port Jurong's ROCE
Long story short, while Rizhao Port Jurong has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 56% 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.
One more thing, we've spotted 1 warning sign facing Rizhao Port Jurong that you might find interesting.
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.