The Returns At Dynagreen Environmental Protection Group (HKG:1330) Aren't Growing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Dynagreen Environmental Protection Group (HKG:1330) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

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 Dynagreen Environmental Protection Group, this is the formula:

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

0.057 = CN¥881m ÷ (CN¥19b - CN¥3.5b) (Based on the trailing twelve months to December 2021).

Thus, Dynagreen Environmental Protection Group has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 9.1%.

View our latest analysis for Dynagreen Environmental Protection Group

Above you can see how the current ROCE for Dynagreen Environmental Protection Group 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 report for Dynagreen Environmental Protection Group.

How Are Returns Trending?

The returns on capital haven't changed much for Dynagreen Environmental Protection Group in recent years. Over the past five years, ROCE has remained relatively flat at around 5.7% and the business has deployed 246% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Dynagreen Environmental Protection Group's ROCE

In summary, Dynagreen Environmental Protection Group has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 13% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Dynagreen Environmental Protection Group does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.