There Are Reasons To Feel Uneasy About China Suntien Green Energy's (HKG:956) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 China Suntien Green Energy (HKG:956), it didn't seem to tick all of these boxes.

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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. 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)

0.06 = CN¥3.8b ÷ (CN¥86b - CN¥22b) (Based on the trailing twelve months to March 2025).

So, China Suntien Green Energy has an ROCE of 6.0%. Even though it's in line with the industry average of 6.5%, it's still a low return by itself.

View 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 analyst report for China Suntien Green Energy .

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

When we looked at the ROCE trend at China Suntien Green Energy, we didn't gain much confidence. Around five years ago the returns on capital were 7.8%, but since then they've fallen to 6.0%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that China Suntien Green Energy is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 222% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

China Suntien Green Energy does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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.

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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.