There's Been No Shortage Of Growth Recently For Zhongmin Energy's (SHSE:600163) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Zhongmin Energy (SHSE:600163) looks quite promising in regards to its trends of return on capital.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Zhongmin Energy is:

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

0.087 = CN¥873m ÷ (CN¥12b - CN¥1.6b) (Based on the trailing twelve months to March 2024).

So, Zhongmin Energy has an ROCE of 8.7%. On its own that's a low return, but compared to the average of 5.9% generated by the Renewable Energy industry, it's much better.

Check out our latest analysis for Zhongmin Energy

Above you can see how the current ROCE for Zhongmin Energy 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 Zhongmin Energy .

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 8.7%. The amount of capital employed has increased too, by 197%. So we're very much inspired by what we're seeing at Zhongmin Energy thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Zhongmin Energy has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 15% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a separate note, we've found 1 warning sign for Zhongmin Energy you'll probably want to 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.