Jinneng Holding Shanxi Electric PowerLTD (SZSE:000767) Is Doing The Right Things To Multiply Its Share Price

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. With that in mind, we've noticed some promising trends at Jinneng Holding Shanxi Electric PowerLTD (SZSE:000767) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Jinneng Holding Shanxi Electric PowerLTD, this is the formula:

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

0.028 = CN¥1.1b ÷ (CN¥60b - CN¥21b) (Based on the trailing twelve months to June 2023).

Therefore, Jinneng Holding Shanxi Electric PowerLTD has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 5.3%.

See our latest analysis for Jinneng Holding Shanxi Electric PowerLTD

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Jinneng Holding Shanxi Electric PowerLTD.

What The Trend Of ROCE Can Tell Us

Jinneng Holding Shanxi Electric PowerLTD has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 2.8% on its capital. And unsurprisingly, like most companies trying to break into the black, Jinneng Holding Shanxi Electric PowerLTD is utilizing 33% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Jinneng Holding Shanxi Electric PowerLTD's ROCE

To the delight of most shareholders, Jinneng Holding Shanxi Electric PowerLTD has now broken into profitability. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One final note, you should learn about the 3 warning signs we've spotted with Jinneng Holding Shanxi Electric PowerLTD (including 2 which shouldn't be ignored) .

While Jinneng Holding Shanxi Electric PowerLTD 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.