Returns On Capital At Shanghai SK Petroleum & Chemical Equipment (SZSE:002278) Have Hit The Brakes

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Shanghai SK Petroleum & Chemical Equipment (SZSE:002278) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Shanghai SK Petroleum & Chemical Equipment:

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

0.027 = CN¥33m ÷ (CN¥1.8b - CN¥529m) (Based on the trailing twelve months to March 2024).

Therefore, Shanghai SK Petroleum & Chemical Equipment has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 6.5%.

View our latest analysis for Shanghai SK Petroleum & Chemical Equipment

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Shanghai SK Petroleum & Chemical Equipment's past further, check out this free graph covering Shanghai SK Petroleum & Chemical Equipment's past earnings, revenue and cash flow.

How Are Returns Trending?

There hasn't been much to report for Shanghai SK Petroleum & Chemical Equipment's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Shanghai SK Petroleum & Chemical Equipment doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

We can conclude that in regards to Shanghai SK Petroleum & Chemical Equipment's returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 21% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we found 4 warning signs for Shanghai SK Petroleum & Chemical Equipment (1 can't be ignored) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.