Returns On Capital Are Showing Encouraging Signs At Shanghai Taisheng Wind Power Equipment (SZSE:300129)

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 when we looked at Shanghai Taisheng Wind Power Equipment (SZSE:300129) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Shanghai Taisheng Wind Power Equipment:

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

0.061 = CN¥302m ÷ (CN¥8.1b - CN¥3.2b) (Based on the trailing twelve months to March 2024).

Thus, Shanghai Taisheng Wind Power Equipment has an ROCE of 6.1%. Even though it's in line with the industry average of 6.0%, it's still a low return by itself.

See our latest analysis for Shanghai Taisheng Wind Power Equipment

In the above chart we have measured Shanghai Taisheng Wind Power Equipment's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shanghai Taisheng Wind Power Equipment .

What The Trend Of ROCE Can Tell Us

We're delighted to see that Shanghai Taisheng Wind Power Equipment is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 6.1% on its capital. And unsurprisingly, like most companies trying to break into the black, Shanghai Taisheng Wind Power Equipment is utilizing 117% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Shanghai Taisheng Wind Power Equipment's ROCE

In summary, it's great to see that Shanghai Taisheng Wind Power Equipment has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 67% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Shanghai Taisheng Wind Power Equipment can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Shanghai Taisheng Wind Power Equipment (of which 1 is potentially serious!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com