Be Wary Of Zhejiang Provincial New Energy Investment Group (SHSE:600032) And Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. However, after briefly looking over the numbers, we don't think Zhejiang Provincial New Energy Investment Group (SHSE:600032) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Zhejiang Provincial New Energy Investment Group, this is the formula:

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

0.039 = CN¥1.8b ÷ (CN¥55b - CN¥7.7b) (Based on the trailing twelve months to September 2024).

Thus, Zhejiang Provincial New Energy Investment Group has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 5.6%.

See our latest analysis for Zhejiang Provincial New Energy Investment Group

In the above chart we have measured Zhejiang Provincial New Energy Investment Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Zhejiang Provincial New Energy Investment Group .

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Zhejiang Provincial New Energy Investment Group doesn't inspire confidence. To be more specific, ROCE has fallen from 4.9% over the last five years. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

While returns have fallen for Zhejiang Provincial New Energy Investment Group in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 50% over the last three years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing: We've identified 2 warning signs with Zhejiang Provincial New Energy Investment Group (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

While Zhejiang Provincial New Energy Investment Group 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.