Returns On Capital At Dezhou United Petroleum TechnologyLtd (SZSE:301158) Paint A Concerning Picture

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. In light of that, when we looked at Dezhou United Petroleum TechnologyLtd (SZSE:301158) and its ROCE trend, we weren't exactly thrilled.

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What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Dezhou United Petroleum TechnologyLtd:

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

0.087 = CN¥114m ÷ (CN¥1.7b - CN¥371m) (Based on the trailing twelve months to December 2024).

Thus, Dezhou United Petroleum TechnologyLtd has an ROCE of 8.7%. On its own that's a low return, but compared to the average of 6.5% generated by the Energy Services industry, it's much better.

See our latest analysis for Dezhou United Petroleum TechnologyLtd

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Dezhou United Petroleum TechnologyLtd.

What Does the ROCE Trend For Dezhou United Petroleum TechnologyLtd Tell Us?

On the surface, the trend of ROCE at Dezhou United Petroleum TechnologyLtd doesn't inspire confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 8.7%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Dezhou United Petroleum TechnologyLtd. These growth trends haven't led to growth returns though, since the stock has fallen 39% over the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to continue researching Dezhou United Petroleum TechnologyLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.