Today we are going to look at Zhongmin Baihui Retail Group Ltd. (SGX:5SR) to see whether it might be an attractive investment prospect. Specifically, we're going to calculate its Return On Capital Employed (ROCE), in the hopes of getting some insight into the business.

First of all, we'll work out how to calculate ROCE. Next, we'll compare it to others in its industry. Finally, we'll look at how its current liabilities affect its ROCE.

Return On Capital Employed (ROCE): What is it?

ROCE measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Generally speaking a higher ROCE is better. Overall, it is a valuable metric that has its flaws. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.

So, How Do We Calculate ROCE?

Analysts use this formula to calculate return on capital employed:

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

Or for Zhongmin Baihui Retail Group:

0.00045 = CN¥193k ÷ (CN¥899m - CN¥478m) (Based on the trailing twelve months to September 2019.)

So, Zhongmin Baihui Retail Group has an ROCE of 0.04%.

See our latest analysis for Zhongmin Baihui Retail Group

Is Zhongmin Baihui Retail Group's ROCE Good?

When making comparisons between similar businesses, investors may find ROCE useful. Using our data, Zhongmin Baihui Retail Group's ROCE appears to be significantly below the 6.9% average in the Multiline Retail industry. This performance is not ideal, as it suggests the company may not be deploying its capital as effectively as some competitors. Putting aside Zhongmin Baihui Retail Group's performance relative to its industry, its ROCE in absolute terms is poor - considering the risk of owning stocks compared to government bonds. It is likely that there are more attractive prospects out there.

Zhongmin Baihui Retail Group reported an ROCE of 0.04% -- better than 3 years ago, when the company didn't make a profit. That implies the business has been improving. You can see in the image below how Zhongmin Baihui Retail Group's ROCE compares to its industry. Click to see more on past growth.

When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. ROCE is, after all, simply a snap shot of a single year. If Zhongmin Baihui Retail Group is cyclical, it could make sense to check out this free graph of past earnings, revenue and cash flow.