Delong Composite Energy Group (SZSE:000593) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, we've noticed some promising trends at Delong Composite Energy Group (SZSE:000593) so let's look a bit deeper.

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. To calculate this metric for Delong Composite Energy Group, this is the formula:

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

0.11 = CN¥133m ÷ (CN¥2.0b - CN¥758m) (Based on the trailing twelve months to March 2024).

Thus, Delong Composite Energy Group has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Gas Utilities industry average of 9.0%.

Check out our latest analysis for Delong Composite Energy Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Delong Composite Energy Group's past further, check out this free graph covering Delong Composite Energy Group's past earnings, revenue and cash flow.

What Does the ROCE Trend For Delong Composite Energy Group Tell Us?

Delong Composite Energy Group has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 143% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Delong Composite Energy Group's ROCE

In summary, we're delighted to see that Delong Composite Energy Group has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 37% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

While Delong Composite Energy Group looks impressive, no company is worth an infinite price. The intrinsic value infographic for 000593 helps visualize whether it is currently trading for a fair price.

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.