Returns At Beijing Jingneng Power (SHSE:600578) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, we've noticed some promising trends at Beijing Jingneng Power (SHSE:600578) so let's look a bit deeper.

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. To calculate this metric for Beijing Jingneng Power, this is the formula:

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

0.02 = CN¥1.3b ÷ (CN¥87b - CN¥23b) (Based on the trailing twelve months to September 2023).

Thus, Beijing Jingneng Power has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 5.6%.

See our latest analysis for Beijing Jingneng Power

In the above chart we have measured Beijing Jingneng Power's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Beijing Jingneng Power .

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 2.0%. The amount of capital employed has increased too, by 34%. So we're very much inspired by what we're seeing at Beijing Jingneng Power thanks to its ability to profitably reinvest capital.

What We Can Learn From Beijing Jingneng Power's ROCE

To sum it up, Beijing Jingneng Power has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 1.1% 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.

Like most companies, Beijing Jingneng Power does come with some risks, and we've found 2 warning signs that you should be aware of.

While Beijing Jingneng Power 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.