Here's What's Concerning About Jointo Energy Investment Hebei's (SZSE:000600) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. However, after investigating Jointo Energy Investment Hebei (SZSE:000600), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Jointo Energy Investment Hebei is:

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

0.03 = CN¥894m ÷ (CN¥41b - CN¥11b) (Based on the trailing twelve months to March 2024).

Therefore, Jointo Energy Investment Hebei has an ROCE of 3.0%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 5.9%.

See our latest analysis for Jointo Energy Investment Hebei

In the above chart we have measured Jointo Energy Investment Hebei's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Jointo Energy Investment Hebei .

So How Is Jointo Energy Investment Hebei's ROCE Trending?

In terms of Jointo Energy Investment Hebei's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 6.2% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Jointo Energy Investment Hebei is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 11% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Jointo Energy Investment Hebei does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.