Shaanxi Energy Investment (SZSE:001286) Is Doing The Right Things To Multiply Its Share Price

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Shaanxi Energy Investment (SZSE:001286) so let's look a bit deeper.

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 Shaanxi Energy Investment is:

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

0.12 = CN¥6.0b ÷ (CN¥60b - CN¥11b) (Based on the trailing twelve months to September 2023).

Therefore, Shaanxi Energy Investment has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.0% generated by the Renewable Energy industry.

Check out our latest analysis for Shaanxi Energy Investment

Above you can see how the current ROCE for Shaanxi Energy Investment 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 Shaanxi Energy Investment .

So How Is Shaanxi Energy Investment's ROCE Trending?

Shaanxi Energy Investment is displaying some positive trends. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 72%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 17%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Shaanxi Energy Investment has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Shaanxi Energy Investment's ROCE

In summary, it's great to see that Shaanxi Energy Investment can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last year the stock has only returned 3.6% to shareholders. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 2 warning signs facing Shaanxi Energy Investment that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.