Returns Are Gaining Momentum At Tongdao Liepin Group (HKG:6100)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Tongdao Liepin Group (HKG:6100) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Tongdao Liepin Group:

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

0.0059 = CN¥19m ÷ (CN¥4.4b - CN¥1.2b) (Based on the trailing twelve months to June 2024).

So, Tongdao Liepin Group has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 7.1%.

View our latest analysis for Tongdao Liepin Group

Above you can see how the current ROCE for Tongdao Liepin Group 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 Tongdao Liepin Group .

How Are Returns Trending?

Shareholders will be relieved that Tongdao Liepin Group has broken into profitability. The company now earns 0.6% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Tongdao Liepin Group has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

Our Take On Tongdao Liepin Group's ROCE

As discussed above, Tongdao Liepin Group appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And since the stock has dived 88% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

On a final note, we've found 2 warning signs for Tongdao Liepin Group that we think you should be aware of.

While Tongdao Liepin Group 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.