Sichuan Mingxing Electric Power (SHSE:600101) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. With that in mind, we've noticed some promising trends at Sichuan Mingxing Electric Power (SHSE:600101) so let's look a bit deeper.

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

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 Sichuan Mingxing Electric Power:

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

0.045 = CN¥143m ÷ (CN¥4.0b - CN¥844m) (Based on the trailing twelve months to June 2024).

So, Sichuan Mingxing Electric Power has an ROCE of 4.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.5%.

Check out our latest analysis for Sichuan Mingxing Electric Power

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sichuan Mingxing Electric Power's ROCE against it's prior returns. If you're interested in investigating Sichuan Mingxing Electric Power's past further, check out this free graph covering Sichuan Mingxing Electric Power's past earnings, revenue and cash flow.

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 4.5%. The amount of capital employed has increased too, by 23%. So we're very much inspired by what we're seeing at Sichuan Mingxing Electric Power thanks to its ability to profitably reinvest capital.

What We Can Learn From Sichuan Mingxing Electric Power's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Sichuan Mingxing Electric Power has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 68% return over the last five years. In light of that, we think it's worth looking further into this stock because if Sichuan Mingxing Electric Power can keep these trends up, it could have a bright future ahead.

Sichuan Mingxing Electric Power does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think 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.