Central Plains Environment ProtectionLtd (SZSE:000544) Is Doing The Right Things To Multiply Its Share Price

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Central Plains Environment ProtectionLtd (SZSE:000544) so let's look a bit deeper.

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 Central Plains Environment ProtectionLtd:

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

0.055 = CN¥1.8b ÷ (CN¥39b - CN¥6.8b) (Based on the trailing twelve months to September 2024).

Thus, Central Plains Environment ProtectionLtd has an ROCE of 5.5%. On its own, that's a low figure but it's around the 5.3% average generated by the Commercial Services industry.

Check out our latest analysis for Central Plains Environment ProtectionLtd

Above you can see how the current ROCE for Central Plains Environment ProtectionLtd 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 Central Plains Environment ProtectionLtd for free.

What Can We Tell From Central Plains Environment ProtectionLtd's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 5.5%. The amount of capital employed has increased too, by 262%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Central Plains Environment ProtectionLtd is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 64% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Central Plains Environment ProtectionLtd can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Central Plains Environment ProtectionLtd we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Central Plains Environment ProtectionLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.