GD Power DevelopmentLtd (SHSE:600795) Hasn't Managed To Accelerate Its Returns

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at GD Power DevelopmentLtd (SHSE:600795) 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. To calculate this metric for GD Power DevelopmentLtd, this is the formula:

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

0.056 = CN¥20b ÷ (CN¥480b - CN¥127b) (Based on the trailing twelve months to September 2024).

So, GD Power DevelopmentLtd has an ROCE of 5.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.6%.

See our latest analysis for GD Power DevelopmentLtd

Above you can see how the current ROCE for GD Power DevelopmentLtd 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 GD Power DevelopmentLtd .

What Can We Tell From GD Power DevelopmentLtd's ROCE Trend?

In terms of GD Power DevelopmentLtd's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 5.6% for the last five years, and the capital employed within the business has risen 24% 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.

The Key Takeaway

As we've seen above, GD Power DevelopmentLtd's returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 111% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

GD Power DevelopmentLtd does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While GD Power DevelopmentLtd 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.