CECEP Wind-power CorporationLtd (SHSE:601016) Has More To Do To Multiply In Value Going Forward

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 CECEP Wind-power CorporationLtd (SHSE:601016) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for CECEP Wind-power CorporationLtd, this is the formula:

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

0.066 = CN¥2.5b ÷ (CN¥43b - CN¥5.0b) (Based on the trailing twelve months to June 2024).

So, CECEP Wind-power CorporationLtd has an ROCE of 6.6%. On its own, that's a low figure but it's around the 5.6% average generated by the Renewable Energy industry.

Check out our latest analysis for CECEP Wind-power CorporationLtd

In the above chart we have measured CECEP Wind-power CorporationLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering CECEP Wind-power CorporationLtd for free.

So How Is CECEP Wind-power CorporationLtd's ROCE Trending?

The returns on capital haven't changed much for CECEP Wind-power CorporationLtd in recent years. The company has employed 96% more capital in the last five years, and the returns on that capital have remained stable at 6.6%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On CECEP Wind-power CorporationLtd's ROCE

As we've seen above, CECEP Wind-power CorporationLtd's returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 65% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to know some of the risks facing CECEP Wind-power CorporationLtd we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.