Returns On Capital At Shan Xi Hua Yang Group New EnergyLtd (SHSE:600348) Have Stalled

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Shan Xi Hua Yang Group New EnergyLtd's (SHSE:600348) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Shan Xi Hua Yang Group New EnergyLtd is:

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

0.11 = CN¥5.5b ÷ (CN¥74b - CN¥24b) (Based on the trailing twelve months to June 2024).

Thus, Shan Xi Hua Yang Group New EnergyLtd has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Oil and Gas industry.

See our latest analysis for Shan Xi Hua Yang Group New EnergyLtd

Above you can see how the current ROCE for Shan Xi Hua Yang Group New EnergyLtd 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 Shan Xi Hua Yang Group New EnergyLtd for free.

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 95% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Shan Xi Hua Yang Group New EnergyLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 33% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From Shan Xi Hua Yang Group New EnergyLtd's ROCE

To sum it up, Shan Xi Hua Yang Group New EnergyLtd has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 170% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Shan Xi Hua Yang Group New EnergyLtd does have some risks though, and we've spotted 2 warning signs for Shan Xi Hua Yang Group New EnergyLtd that you might be interested in.

While Shan Xi Hua Yang Group New EnergyLtd 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.