Some Investors May Be Worried About Jinneng Holding Shanxi Electric PowerLTD's (SZSE:000767) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Jinneng Holding Shanxi Electric PowerLTD (SZSE:000767) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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)

0.0099 = CN¥386m ÷ (CN¥59b - CN¥20b) (Based on the trailing twelve months to September 2024).

Thus, Jinneng Holding Shanxi Electric PowerLTD has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 5.6%.

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 Does the ROCE Trend For Jinneng Holding Shanxi Electric PowerLTD Tell Us?

When we looked at the ROCE trend at Jinneng Holding Shanxi Electric PowerLTD, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 1.0% from 5.4% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line

We're a bit apprehensive about Jinneng Holding Shanxi Electric PowerLTD because despite more capital being deployed in the business, returns on that capital and sales have both fallen. In spite of that, the stock has delivered a 7.4% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One more thing, we've spotted 1 warning sign facing Jinneng Holding Shanxi Electric PowerLTD that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.