Return Trends At Zhongshan Public Utilities GroupLtd (SZSE:000685) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. In light of that, when we looked at Zhongshan Public Utilities GroupLtd (SZSE:000685) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Zhongshan Public Utilities GroupLtd:

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

0.02 = CN¥488m ÷ (CN¥30b - CN¥5.5b) (Based on the trailing twelve months to September 2024).

So, Zhongshan Public Utilities GroupLtd has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Water Utilities industry average of 6.2%.

View our latest analysis for Zhongshan Public Utilities GroupLtd

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 Zhongshan Public Utilities GroupLtd's past further, check out this free graph covering Zhongshan Public Utilities GroupLtd's past earnings, revenue and cash flow.

So How Is Zhongshan Public Utilities GroupLtd's ROCE Trending?

There are better returns on capital out there than what we're seeing at Zhongshan Public Utilities GroupLtd. The company has employed 59% more capital in the last five years, and the returns on that capital have remained stable at 2.0%. 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 Bottom Line

As we've seen above, Zhongshan Public Utilities GroupLtd's returns on capital haven't increased but it is reinvesting in the business. And investors may be recognizing these trends since the stock has only returned a total of 29% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we found 2 warning signs for Zhongshan Public Utilities GroupLtd (1 doesn't sit too well with us) you should be aware of.

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.