Here's What To Make Of China Suntien Green Energy's (HKG:956) Decelerating Rates Of Return

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating China Suntien Green Energy (HKG:956), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. 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)

0.074 = CN¥4.0b ÷ (CN¥72b - CN¥18b) (Based on the trailing twelve months to June 2022).

Therefore, China Suntien Green Energy has an ROCE of 7.4%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 12%.

Check out our latest analysis for China Suntien Green Energy

In the above chart we have measured China Suntien Green Energy'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 China Suntien Green Energy.

What Does the ROCE Trend For China Suntien Green Energy Tell Us?

In terms of China Suntien Green Energy's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 7.4% and the business has deployed 123% 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.

Our Take On China Suntien Green Energy's ROCE

In conclusion, China Suntien Green Energy has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 94% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing: We've identified 3 warning signs with China Suntien Green Energy (at least 1 which is potentially serious) , and understanding them would certainly be useful.

While China Suntien Green Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.