Investors Met With Slowing Returns on Capital At Jilin Electric PowerLtd (SZSE:000875)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Jilin Electric PowerLtd (SZSE:000875) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Jilin Electric PowerLtd is:

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

0.055 = CN¥3.4b ÷ (CN¥78b - CN¥16b) (Based on the trailing twelve months to March 2024).

Therefore, Jilin Electric PowerLtd has an ROCE of 5.5%. In absolute terms, that's a low return but it's around the Renewable Energy industry average of 5.9%.

Check out our latest analysis for Jilin Electric PowerLtd

Above you can see how the current ROCE for Jilin Electric PowerLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Jilin Electric PowerLtd .

So How Is Jilin Electric PowerLtd's ROCE Trending?

There are better returns on capital out there than what we're seeing at Jilin Electric PowerLtd. Over the past five years, ROCE has remained relatively flat at around 5.5% and the business has deployed 121% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Jilin Electric PowerLtd's ROCE

In summary, Jilin Electric PowerLtd has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 77% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we found 2 warning signs for Jilin Electric PowerLtd (1 is a bit concerning) you should be aware of.

While Jilin 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com