Investors Could Be Concerned With Shandong Hi-Speed New Energy Group's (HKG:1250) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Although, when we looked at Shandong Hi-Speed New Energy Group (HKG:1250), it didn't seem to tick all of these boxes.

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Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Shandong Hi-Speed New Energy Group, this is the formula:

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

0.042 = CN¥1.7b ÷ (CN¥50b - CN¥9.2b) (Based on the trailing twelve months to June 2025).

So, Shandong Hi-Speed New Energy Group has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 6.4%.

Check out our latest analysis for Shandong Hi-Speed New Energy Group

In the above chart we have measured Shandong Hi-Speed New Energy Group'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 analyst report for Shandong Hi-Speed New Energy Group .

The Trend Of ROCE

On the surface, the trend of ROCE at Shandong Hi-Speed New Energy Group doesn't inspire confidence. To be more specific, ROCE has fallen from 5.5% over the last five years. 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 may take some time before the company starts to see any change in earnings from these investments.

On a side note, Shandong Hi-Speed New Energy Group has done well to pay down its current liabilities to 19% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From Shandong Hi-Speed New Energy Group's ROCE

Bringing it all together, while we're somewhat encouraged by Shandong Hi-Speed New Energy Group's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 19% over the last five years, investors may not be too optimistic on this trend improving either. 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.

One more thing to note, we've identified 1 warning sign with Shandong Hi-Speed New Energy Group and understanding this should be part of your investment process.

While Shandong Hi-Speed New Energy Group 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.