We Like These Underlying Return On Capital Trends At Tianjin Capital Environmental Protection Group (SHSE:600874)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Tianjin Capital Environmental Protection Group (SHSE:600874) and its trend of ROCE, we really liked what we saw.

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

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. The formula for this calculation on Tianjin Capital Environmental Protection Group is:

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

0.07 = CN¥1.5b ÷ (CN¥26b - CN¥4.2b) (Based on the trailing twelve months to September 2024).

Therefore, 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 5.3%.

See our latest analysis for Tianjin Capital Environmental Protection Group

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 Tianjin Capital Environmental Protection Group's past further, check out this free graph covering Tianjin Capital Environmental Protection Group'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 data shows that returns on capital have increased substantially over the last five years to 7.0%. The amount of capital employed has increased too, by 53%. 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 On Tianjin Capital Environmental Protection Group's ROCE

All in all, it's terrific to see that Tianjin Capital Environmental Protection Group is reaping the rewards from prior investments and is growing its capital base. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing: We've identified 2 warning signs with Tianjin Capital Environmental Protection Group (at least 1 which is potentially serious) , and understanding them would certainly be useful.

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.