SINOPEC Engineering (Group) (HKG:2386) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. With that in mind, we've noticed some promising trends at SINOPEC Engineering (Group) (HKG:2386) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for SINOPEC Engineering (Group), this is the formula:

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

0.051 = CN¥1.7b ÷ (CN¥81b - CN¥48b) (Based on the trailing twelve months to June 2024).

So, SINOPEC Engineering (Group) has an ROCE of 5.1%. In absolute terms, that's a low return but it's around the Construction industry average of 5.7%.

Check out our latest analysis for SINOPEC Engineering (Group)

Above you can see how the current ROCE for SINOPEC Engineering (Group) compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering SINOPEC Engineering (Group) for free.

The Trend Of ROCE

SINOPEC Engineering (Group)'s ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 25% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a separate but related note, it's important to know that SINOPEC Engineering (Group) has a current liabilities to total assets ratio of 59%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

To sum it up, SINOPEC Engineering (Group) is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 71% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if SINOPEC Engineering (Group) can keep these trends up, it could have a bright future ahead.

If you'd like to know more about SINOPEC Engineering (Group), we've spotted 2 warning signs, and 1 of them is concerning.

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.