China Shuifa Singyes Energy Holdings' (HKG:750) Returns On Capital Are Heading Higher

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, China Shuifa Singyes Energy Holdings (HKG:750) looks quite promising in regards to its trends of return on capital.

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What Is 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. To calculate this metric for China Shuifa Singyes Energy Holdings, this is the formula:

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

0.047 = CN¥464m ÷ (CN¥21b - CN¥11b) (Based on the trailing twelve months to June 2024).

Therefore, China Shuifa Singyes Energy Holdings has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Construction industry average of 5.9%.

See our latest analysis for China Shuifa Singyes Energy Holdings

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'd like to look at how China Shuifa Singyes Energy Holdings has performed in the past in other metrics, you can view this free graph of China Shuifa Singyes Energy Holdings' past earnings, revenue and cash flow.

What Does the ROCE Trend For China Shuifa Singyes Energy Holdings Tell Us?

We're delighted to see that China Shuifa Singyes Energy Holdings is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.7% on its capital. In addition to that, China Shuifa Singyes Energy Holdings is employing 185% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 52%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Key Takeaway

To the delight of most shareholders, China Shuifa Singyes Energy Holdings has now broken into profitability. And since the stock has fallen 41% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about China Shuifa Singyes Energy Holdings, we've spotted 3 warning signs, and 1 of them is a bit unpleasant.

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.