The Returns At Chongqing Sanfeng Environment Group (SHSE:601827) Aren't Growing

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. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Chongqing Sanfeng Environment Group (SHSE:601827), it didn't seem to tick all of these boxes.

What Is 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. Analysts use this formula to calculate it for Chongqing Sanfeng Environment Group:

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

0.081 = CN¥1.5b ÷ (CN¥25b - CN¥5.5b) (Based on the trailing twelve months to September 2024).

Thus, Chongqing Sanfeng Environment Group has an ROCE of 8.1%. On its own that's a low return, but compared to the average of 5.6% generated by the Renewable Energy industry, it's much better.

View our latest analysis for Chongqing Sanfeng Environment Group

In the above chart we have measured Chongqing Sanfeng Environment Group'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 Chongqing Sanfeng Environment Group for free.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Chongqing Sanfeng Environment Group 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 8.1%. 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.

The Bottom Line

As we've seen above, Chongqing Sanfeng Environment Group's returns on capital haven't increased but it is reinvesting in the business. Additionally, the stock's total return to shareholders over the last three years has been flat, which isn't too surprising. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing, we've spotted 1 warning sign facing Chongqing Sanfeng Environment Group that you might find interesting.

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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.