Shan Xi Hua Yang Group New EnergyLtd (SHSE:600348) Hasn't Managed To Accelerate Its Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. 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.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Shan Xi Hua Yang Group New EnergyLtd:

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

0.14 = CN¥6.8b ÷ (CN¥73b - CN¥23b) (Based on the trailing twelve months to March 2024).

Therefore, Shan Xi Hua Yang Group New EnergyLtd has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% 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.

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. The company has employed 95% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that Shan Xi Hua Yang Group New EnergyLtd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Shan Xi Hua Yang Group New EnergyLtd has done well to reduce current liabilities to 32% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

The main thing to remember is that Shan Xi Hua Yang Group New EnergyLtd has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 263% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Shan Xi Hua Yang Group New EnergyLtd does have some risks though, and we've spotted 1 warning sign 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.