There Are Reasons To Feel Uneasy About Jointo Energy Investment Hebei's (SZSE:000600) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential 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. In light of that, when we looked at Jointo Energy Investment Hebei (SZSE:000600) and its ROCE trend, we weren't exactly thrilled.

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

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 Jointo Energy Investment Hebei, this is the formula:

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

0.027 = CN¥808m ÷ (CN¥40b - CN¥10b) (Based on the trailing twelve months to September 2024).

Therefore, Jointo Energy Investment Hebei has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 5.6%.

See 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'd like, you can check out the forecasts from the analysts covering Jointo Energy Investment Hebei for free.

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

When we looked at the ROCE trend at Jointo Energy Investment Hebei, we didn't gain much confidence. To be more specific, ROCE has fallen from 6.7% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Jointo Energy Investment Hebei. In light of this, the stock has only gained 24% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

One final note, you should learn about the 3 warning signs we've spotted with Jointo Energy Investment Hebei (including 1 which doesn't sit too well with us) .

While Jointo Energy Investment Hebei 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.

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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.