The Return Trends At Fujian Mindong Electric Power Limited (SZSE:000993) Look Promising

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Fujian Mindong Electric Power Limited (SZSE:000993) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Fujian Mindong Electric Power Limited:

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

0.088 = CN¥273m ÷ (CN¥3.4b - CN¥300m) (Based on the trailing twelve months to March 2024).

So, Fujian Mindong Electric Power Limited has an ROCE of 8.8%. 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 Fujian Mindong Electric Power Limited

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 Fujian Mindong Electric Power Limited's past further, check out this free graph covering Fujian Mindong Electric Power Limited's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Fujian Mindong Electric Power Limited has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 85% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 8.8%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Fujian Mindong Electric Power Limited's ROCE

To sum it up, Fujian Mindong Electric Power Limited is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 34% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Fujian Mindong Electric Power Limited does have some risks though, and we've spotted 2 warning signs for Fujian Mindong Electric Power Limited that you might be interested in.

While Fujian Mindong Electric Power Limited 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.