We Like These Underlying Return On Capital Trends At Guangdong Baolihua New Energy Stock (SZSE:000690)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in Guangdong Baolihua New Energy Stock's (SZSE:000690) returns on capital, so let's have a look.

What Is 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 Guangdong Baolihua New Energy Stock:

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

0.073 = CN¥1.3b ÷ (CN¥21b - CN¥3.5b) (Based on the trailing twelve months to March 2024).

So, Guangdong Baolihua New Energy Stock has an ROCE of 7.3%. On its own that's a low return, but compared to the average of 5.9% generated by the Renewable Energy industry, it's much better.

See our latest analysis for Guangdong Baolihua New Energy Stock

In the above chart we have measured Guangdong Baolihua New Energy Stock's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Guangdong Baolihua New Energy Stock .

The Trend Of ROCE

Guangdong Baolihua New Energy Stock has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 36% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Guangdong Baolihua New Energy Stock's ROCE

To bring it all together, Guangdong Baolihua New Energy Stock has done well to increase the returns it's generating from its capital employed. Given the stock has declined 12% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Guangdong Baolihua New Energy Stock does have some risks though, and we've spotted 1 warning sign for Guangdong Baolihua New Energy Stock that you might be interested in.

While Guangdong Baolihua New Energy Stock isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.