China Suntien Green Energy (HKG:956) Shareholders Will Want The ROCE Trajectory To Continue

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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at China Suntien Green Energy (HKG:956) so let's look a bit deeper.

What is 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. Analysts use this formula to calculate it for China Suntien Green Energy:

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

0.07 = CN¥4.0b ÷ (CN¥71b - CN¥15b) (Based on the trailing twelve months to March 2022).

Thus, China Suntien Green Energy has an ROCE of 7.0%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 8.9%.

Check out our latest analysis for China Suntien Green Energy

Above you can see how the current ROCE for China Suntien Green Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.0%. The amount of capital employed has increased too, by 131%. So we're very much inspired by what we're seeing at China Suntien Green Energy thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that China Suntien Green Energy is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 283% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

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