Here's What To Make Of Zhejiang Provincial New Energy Investment Group's (SHSE:600032) Decelerating Rates Of Return

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Although, when we looked at Zhejiang Provincial New Energy Investment Group (SHSE:600032), it didn't seem to tick all of these boxes.

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 Zhejiang Provincial New Energy Investment Group:

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

0.041 = CN¥1.9b ÷ (CN¥54b - CN¥7.8b) (Based on the trailing twelve months to March 2024).

Thus, Zhejiang Provincial New Energy Investment Group has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 5.9%.

Check out 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, you can check out the forecasts from the analysts covering Zhejiang Provincial New Energy Investment Group for free.

What Can We Tell From Zhejiang Provincial New Energy Investment Group's ROCE Trend?

In terms of Zhejiang Provincial New Energy Investment Group's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 4.1% for the last five years, and the capital employed within the business has risen 176% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

As we've seen above, Zhejiang Provincial New Energy Investment Group's returns on capital haven't increased but it is reinvesting in the business. And investors appear hesitant that the trends will pick up because the stock has fallen 25% in the last three 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Zhejiang Provincial New Energy Investment Group (of which 1 is significant!) that you should know about.

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.