Investors Met With Slowing Returns on Capital At Dynagreen Environmental Protection Group (HKG:1330)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Dynagreen Environmental Protection Group (HKG:1330), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Dynagreen Environmental Protection Group is:

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

0.093 = CN¥1.2b ÷ (CN¥18b - CN¥4.5b) (Based on the trailing twelve months to March 2021).

Therefore, Dynagreen Environmental Protection Group has an ROCE of 9.3%. Even though it's in line with the industry average of 9.2%, it's still a low return by itself.

Check out our latest analysis for Dynagreen Environmental Protection Group

In the above chart we have measured Dynagreen Environmental Protection Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Dynagreen Environmental Protection Group.

The Trend Of ROCE

The returns on capital haven't changed much for Dynagreen Environmental Protection Group in recent years. The company has consistently earned 9.3% for the last five years, and the capital employed within the business has risen 199% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

As we've seen above, Dynagreen Environmental Protection Group's returns on capital haven't increased but it is reinvesting in the business. And with the stock having returned a mere 8.6% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know more about Dynagreen Environmental Protection Group, we've spotted 3 warning signs, and 1 of them shouldn't be ignored.

While Dynagreen Environmental Protection Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.
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