Slowing Rates Of Return At Zhejiang Provincial New Energy Investment Group (SHSE:600032) Leave Little Room For Excitement

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Zhejiang Provincial New Energy Investment Group (SHSE:600032) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. The formula for this calculation on Zhejiang Provincial New Energy Investment Group is:

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

0.041 = CN¥1.9b ÷ (CN¥55b - CN¥8.5b) (Based on the trailing twelve months to June 2024).

Therefore, Zhejiang Provincial New Energy Investment Group has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 5.6%.

View our latest analysis for Zhejiang Provincial New Energy Investment Group

Above you can see how the current ROCE for Zhejiang Provincial New Energy Investment Group 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 Zhejiang Provincial New Energy Investment Group .

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

There are better returns on capital out there than what we're seeing at Zhejiang Provincial New Energy Investment Group. Over the past five years, ROCE has remained relatively flat at around 4.1% and the business has deployed 163% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

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 in the last three years, the stock has given away 60% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

If you want to know some of the risks facing Zhejiang Provincial New Energy Investment Group we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

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.