Returns Are Gaining Momentum At Xinyi Solar Holdings (HKG:968)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Xinyi Solar Holdings (HKG:968) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Xinyi Solar Holdings:

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

0.15 = HK$6.8b ÷ (HK$62b - HK$18b) (Based on the trailing twelve months to June 2024).

Therefore, Xinyi Solar Holdings has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 6.1% it's much better.

See our latest analysis for Xinyi Solar Holdings

Above you can see how the current ROCE for Xinyi Solar Holdings 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 analyst report for Xinyi Solar Holdings .

The Trend Of ROCE

We like the trends that we're seeing from Xinyi Solar Holdings. The data shows that returns on capital have increased substantially over the last five years to 15%. The amount of capital employed has increased too, by 94%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Xinyi Solar Holdings' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Xinyi Solar Holdings has. Given the stock has declined 36% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, Xinyi Solar Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

While Xinyi Solar Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.