Tianjin Construction Development Group's (HKG:2515) Returns On Capital Not Reflecting Well On The Business

If you're looking for a multi-bagger, there's a few things to 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Tianjin Construction Development Group (HKG:2515), it didn't seem to tick all of these boxes.

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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. The formula for this calculation on Tianjin Construction Development Group is:

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

0.041 = CN¥13m ÷ (CN¥643m - CN¥312m) (Based on the trailing twelve months to June 2025).

Therefore, Tianjin Construction Development Group has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 5.3%.

See our latest analysis for Tianjin Construction Development Group

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 Tianjin Construction Development Group has performed in the past in other metrics, you can view this free graph of Tianjin Construction Development Group's past earnings, revenue and cash flow.

What Does the ROCE Trend For Tianjin Construction Development Group Tell Us?

In terms of Tianjin Construction Development Group's historical ROCE movements, the trend isn't fantastic. Over the last four years, returns on capital have decreased to 4.1% from 26% four years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

On a separate but related note, it's important to know that Tianjin Construction Development Group has a current liabilities to total assets ratio of 49%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Tianjin Construction Development Group's ROCE

In summary, Tianjin Construction Development Group is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 100% over the last year, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Tianjin Construction Development Group does have some risks, we noticed 4 warning signs (and 1 which is potentially serious) we think you should know about.

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.