The Returns At Fujian Funeng (SHSE:600483) Aren't Growing

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. However, after investigating Fujian Funeng (SHSE:600483), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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. The formula for this calculation on Fujian Funeng is:

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

0.075 = CN¥3.3b ÷ (CN¥52b - CN¥7.4b) (Based on the trailing twelve months to June 2024).

So, Fujian Funeng has an ROCE of 7.5%. On its own that's a low return, but compared to the average of 5.5% generated by the Renewable Energy industry, it's much better.

See our latest analysis for Fujian Funeng

Above you can see how the current ROCE for Fujian Funeng compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Fujian Funeng .

What Can We Tell From Fujian Funeng's ROCE Trend?

There are better returns on capital out there than what we're seeing at Fujian Funeng. The company has consistently earned 7.5% for the last five years, and the capital employed within the business has risen 89% in that time. 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.

What We Can Learn From Fujian Funeng's ROCE

Long story short, while Fujian Funeng has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 51% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 3 warning signs for Fujian Funeng you'll probably want to know about.

While Fujian Funeng 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.