Returns On Capital At Shanxi Coal International Energy GroupLtd (SHSE:600546) Have Stalled

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Shanxi Coal International Energy GroupLtd (SHSE:600546) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Shanxi Coal International Energy GroupLtd is:

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

0.18 = CN¥5.8b ÷ (CN¥44b - CN¥12b) (Based on the trailing twelve months to September 2024).

Therefore, Shanxi Coal International Energy GroupLtd has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 5.0% generated by the Trade Distributors industry.

View our latest analysis for Shanxi Coal International Energy GroupLtd

Above you can see how the current ROCE for Shanxi Coal International Energy GroupLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Shanxi Coal International Energy GroupLtd .

What Can We Tell From Shanxi Coal International Energy GroupLtd's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 56% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Shanxi Coal International Energy GroupLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Shanxi Coal International Energy GroupLtd has done well to reduce current liabilities to 26% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Shanxi Coal International Energy GroupLtd's ROCE

The main thing to remember is that Shanxi Coal International Energy GroupLtd has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing, we've spotted 2 warning signs facing Shanxi Coal International Energy GroupLtd that you might find interesting.

While Shanxi Coal International Energy GroupLtd 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.