Returns On Capital Signal Tricky Times Ahead For Jointo Energy Investment Hebei (SZSE:000600)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Jointo Energy Investment Hebei (SZSE:000600), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Jointo Energy Investment Hebei:

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).

So, 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%.

View our latest analysis for Jointo Energy Investment Hebei

Above you can see how the current ROCE for Jointo Energy Investment Hebei compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Jointo Energy Investment Hebei .

What Does the ROCE Trend For Jointo Energy Investment Hebei Tell Us?

On the surface, the trend of ROCE at Jointo Energy Investment Hebei doesn't inspire confidence. 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.

In Conclusion...

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. These trends are starting to be recognized by investors since the stock has delivered a 5.6% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Jointo Energy Investment Hebei (of which 1 can't be ignored!) that you should know about.

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.