The Returns At CECEP Solar EnergyLtd (SZSE:000591) Aren't Growing

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. However, after briefly looking over the numbers, we don't think CECEP Solar EnergyLtd (SZSE:000591) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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 CECEP Solar EnergyLtd is:

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

0.062 = CN¥2.5b ÷ (CN¥47b - CN¥6.9b) (Based on the trailing twelve months to March 2024).

So, CECEP Solar EnergyLtd has an ROCE of 6.2%. Even though it's in line with the industry average of 5.9%, it's still a low return by itself.

View our latest analysis for CECEP Solar EnergyLtd

In the above chart we have measured CECEP Solar EnergyLtd'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 Solar EnergyLtd for free.

So How Is CECEP Solar EnergyLtd's ROCE Trending?

In terms of CECEP Solar EnergyLtd's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 6.2% for the last five years, and the capital employed within the business has risen 43% in that time. 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 Key Takeaway

In summary, CECEP Solar EnergyLtd has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 47% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

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

While CECEP Solar EnergyLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.