Top Energy CompanyShanxi (SHSE:600780) Hasn't Managed To Accelerate Its Returns

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Top Energy CompanyShanxi (SHSE:600780) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

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 Top Energy CompanyShanxi is:

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

0.05 = CN¥399m ÷ (CN¥10b - CN¥2.3b) (Based on the trailing twelve months to June 2024).

So, Top Energy CompanyShanxi has an ROCE of 5.0%. In absolute terms, that's a low return but it's around the Renewable Energy industry average of 5.6%.

View our latest analysis for Top Energy CompanyShanxi

Historical performance is a great place to start when researching a stock so above you can see the gauge for Top Energy CompanyShanxi's ROCE against it's prior returns. If you'd like to look at how Top Energy CompanyShanxi has performed in the past in other metrics, you can view this free graph of Top Energy CompanyShanxi's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Top Energy CompanyShanxi, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Top Energy CompanyShanxi in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In Conclusion...

We can conclude that in regards to Top Energy CompanyShanxi's returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 74% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing to note, we've identified 1 warning sign with Top Energy CompanyShanxi and understanding it should be part of your investment process.

While Top Energy CompanyShanxi 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.