Kingfore Energy Group (SZSE:001210) Will Want To Turn Around Its Return Trends

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Kingfore Energy Group (SZSE:001210), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Kingfore Energy Group is:

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

0.05 = CN¥73m ÷ (CN¥1.7b - CN¥260m) (Based on the trailing twelve months to September 2023).

Thus, Kingfore Energy Group has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Water Utilities industry average of 7.1%.

See our latest analysis for Kingfore Energy Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kingfore Energy Group's ROCE against it's prior returns. If you'd like to look at how Kingfore Energy Group has performed in the past in other metrics, you can view this free graph of Kingfore Energy Group's past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Kingfore Energy Group, we didn't gain much confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 5.0%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, Kingfore Energy Group has done well to pay down its current liabilities to 15% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On Kingfore Energy Group's ROCE

In summary, Kingfore Energy Group is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 29% in the last year. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we've found 4 warning signs for Kingfore Energy Group that we think you should be aware of.

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.