Returns At Shandong Sacred Sun Power SourcesLtd (SZSE:002580) Are On The Way Up

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Shandong Sacred Sun Power SourcesLtd (SZSE:002580) looks quite promising in regards to its trends of return on capital.

What Is 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 Shandong Sacred Sun Power SourcesLtd is:

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

0.047 = CN¥128m ÷ (CN¥3.5b - CN¥817m) (Based on the trailing twelve months to September 2024).

Thus, Shandong Sacred Sun Power SourcesLtd has an ROCE of 4.7%. On its own, that's a low figure but it's around the 5.9% average generated by the Electrical industry.

See our latest analysis for Shandong Sacred Sun Power SourcesLtd

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're interested in investigating Shandong Sacred Sun Power SourcesLtd's past further, check out this free graph covering Shandong Sacred Sun Power SourcesLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 4.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 84% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Shandong Sacred Sun Power SourcesLtd has. And a remarkable 221% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Shandong Sacred Sun Power SourcesLtd can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Shandong Sacred Sun Power SourcesLtd we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Shandong Sacred Sun Power SourcesLtd 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.