What early trends should we look for to identify stocks that have the potential to increase in value over the long term? In particular, we'd like to look at two things.First, grow return The first is capital employed (ROCE) and the second is the company's capital growth. amount of capital employed. This basically means that the company has a profitable endeavor that can be continually reinvested, which is the nature of compound interest.But after a quick look at the numbers, we don't think so. China 21st Century Education Group (HKG:1598) has the potential to become a multibagger in the future, but let's take a look at why.
About Return on Capital Employed (ROCE)
For those who have never used ROCE before, it measures the “return” (pre-tax profit) that a company generates from the capital employed in its business. This formula for China 21st Century Education Group is:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.042 = 56 million CN ÷ (2.3 billion CN – 990 million CN) (Based on the previous 12 months to December 2023).
therefore, China 21st Century Education Group's ROCE is 4.2%. After all, this is a low rate of return, below the consumer services industry average of 11%.
Check out our latest analysis for China 21st Century Education Group.
In the chart above, we have measured China 21st Century Education Group's previous ROCE against its previous performance, but the future is probably more important. To find out what analysts are predicting for the future, check out China 21st Century Education Group's free analyst report.
ROCE trends
When it comes to China 21st Century Education Group's historic ROCE movement, the trend is not great. Over the past five years, his return on capital has fallen to 4.2% from 11% five years ago. However, given that both capital employed and revenue are increasing, it appears that the business is currently pursuing growth for short-term returns. If these investments are successful, they can bode very well for long-term stock performance.
As an aside, China 21st Century Education Group's current liabilities have increased to 43% of total assets over the past five years, effectively distorting its ROCE to some extent. ROCE might actually have been lower if current liabilities hadn't increased as much. What this means is that a large part of the business is actually financed by the company's suppliers, short-term creditors, etc., and that can pose some risks of its own.
Our take on China 21st Century Education Group's ROCE
Although China 21st Century Education Group's profits have fallen recently, we are encouraged to see that its revenue is increasing and it is reinvesting in the business. Despite these encouraging trends, there may be other factors hurting the company's prospects, as the stock is down 77% over the past five years. Therefore, we recommend researching the stock further to learn more about the business.
To learn more about China 21st Century Education Group, please visit: Two warning signs, One of them is not very compatible with us.
Although China 21st Century Education Group does not currently have the highest profit margin, we have compiled a list of companies that currently have a return on equity of 25% or higher.check this out free I'll list them 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 using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.