Tianjin Capital Environmental Protection Group's (SHSE:600874) Returns On Capital Are Heading Higher

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So on that note, Tianjin Capital Environmental Protection Group (SHSE:600874) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Tianjin Capital Environmental Protection Group:

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

0.07 = CN¥1.5b ÷ (CN¥25b - CN¥3.7b) (Based on the trailing twelve months to March 2024).

So, Tianjin Capital Environmental Protection Group has an ROCE of 7.0%. In absolute terms, that's a low return, but it's much better than the Commercial Services industry average of 4.8%.

See 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're interested, you can view the analysts predictions in our free analyst report for Tianjin Capital Environmental Protection Group .

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 data shows that returns on capital have increased substantially over the last five years to 7.0%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 57%. So we're very much inspired by what we're seeing at Tianjin Capital Environmental Protection Group thanks to its ability to profitably reinvest capital.

The Bottom Line

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 Tianjin Capital Environmental Protection Group has. Astute investors may have an opportunity here because the stock has declined 15% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Tianjin Capital Environmental Protection Group, we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.

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.