Return Trends At Jinneng Holding Shanxi Coal Industryltd (SHSE:601001) Aren't Appealing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Jinneng Holding Shanxi Coal Industryltd (SHSE:601001) looks decent, right now, so lets see what the trend of returns can tell us.

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 Jinneng Holding Shanxi Coal Industryltd is:

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

0.18 = CN¥5.2b ÷ (CN¥38b - CN¥9.8b) (Based on the trailing twelve months to June 2024).

Thus, Jinneng Holding Shanxi Coal Industryltd has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Oil and Gas industry.

Check out our latest analysis for Jinneng Holding Shanxi Coal Industryltd

Above you can see how the current ROCE for Jinneng Holding Shanxi Coal Industryltd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Jinneng Holding Shanxi Coal Industryltd .

What The Trend Of ROCE Can Tell Us

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 18% and the business has deployed 91% more capital into its operations. 18% is a pretty standard return, and it provides some comfort knowing that Jinneng Holding Shanxi Coal Industryltd 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 26% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

The main thing to remember is that Jinneng Holding Shanxi Coal Industryltd has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 259% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

One more thing, we've spotted 1 warning sign facing Jinneng Holding Shanxi Coal Industryltd that you might find interesting.

While Jinneng Holding Shanxi Coal Industryltd 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.