Tianjin Capital Environmental Protection Group (SHSE:600874) Has Some Way To Go To Become A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at Tianjin Capital Environmental Protection Group (SHSE:600874) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Tianjin Capital Environmental Protection Group, this is the formula:

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

0.069 = CN¥1.4b ÷ (CN¥24b - CN¥4.3b) (Based on the trailing twelve months to December 2023).

So, Tianjin Capital Environmental Protection Group has an ROCE of 6.9%. In absolute terms, that's a low return, but it's much better than the Commercial Services industry average of 5.5%.

Check out our latest analysis for Tianjin Capital Environmental Protection Group

Above you can see how the current ROCE for Tianjin Capital Environmental Protection Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Tianjin Capital Environmental Protection Group for free.

How Are Returns Trending?

The returns on capital haven't changed much for Tianjin Capital Environmental Protection Group in recent years. Over the past five years, ROCE has remained relatively flat at around 6.9% and the business has deployed 55% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Tianjin Capital Environmental Protection Group's ROCE

Long story short, while Tianjin Capital Environmental Protection Group has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 27% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 2 warning signs for Tianjin Capital Environmental Protection Group (1 is a bit concerning) you should be aware of.

While Tianjin Capital Environmental Protection Group 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.