Datang Environment Industry Group's (HKG:1272) Returns On Capital Are Heading Higher

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Datang Environment Industry Group's (HKG:1272) returns on capital, so let's have a look.

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Understanding 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. The formula for this calculation on Datang Environment Industry Group is:

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

0.07 = CN¥571m ÷ (CN¥15b - CN¥6.7b) (Based on the trailing twelve months to June 2025).

Thus, Datang Environment Industry Group has an ROCE of 7.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.0%.

Check out our latest analysis for Datang Environment Industry Group

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Datang Environment Industry Group.

What Does the ROCE Trend For Datang Environment Industry Group Tell Us?

Datang Environment Industry Group has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 30%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 21% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Datang Environment Industry Group may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, Datang Environment Industry Group's current liabilities are still rather high at 45% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Datang Environment Industry Group's ROCE

In summary, it's great to see that Datang Environment Industry Group has been able to turn things around and earn higher returns on lower amounts of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Datang Environment Industry Group does have some risks though, and we've spotted 1 warning sign for Datang Environment Industry Group that you might be interested in.

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.