Wangneng EnvironmentLtd (SZSE:002034) Hasn't Managed To Accelerate Its Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after briefly looking over the numbers, we don't think Wangneng EnvironmentLtd (SZSE:002034) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Wangneng EnvironmentLtd is:

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

0.073 = CN¥904m ÷ (CN¥14b - CN¥2.1b) (Based on the trailing twelve months to March 2024).

So, Wangneng EnvironmentLtd has an ROCE of 7.3%. On its own that's a low return, but compared to the average of 4.6% generated by the Commercial Services industry, it's much better.

Check out our latest analysis for Wangneng EnvironmentLtd

In the above chart we have measured Wangneng EnvironmentLtd'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 Wangneng EnvironmentLtd .

How Are Returns Trending?

The returns on capital haven't changed much for Wangneng EnvironmentLtd in recent years. Over the past five years, ROCE has remained relatively flat at around 7.3% and the business has deployed 104% 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 Wangneng EnvironmentLtd's ROCE

In conclusion, Wangneng EnvironmentLtd has been investing more capital into the business, but returns on that capital haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 1.9% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Wangneng EnvironmentLtd, we've discovered 2 warning signs that you should be aware of.

While Wangneng EnvironmentLtd 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.