China Datang Corporation Renewable Power (HKG:1798) Has More To Do To Multiply In Value Going Forward

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Although, when we looked at China Datang Corporation Renewable Power (HKG:1798), 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 China Datang Corporation Renewable Power, this is the formula:

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

0.052 = CN¥4.6b ÷ (CN¥117b - CN¥28b) (Based on the trailing twelve months to March 2025).

Therefore, China Datang Corporation Renewable Power has an ROCE of 5.2%. On its own, that's a low figure but it's around the 6.5% average generated by the Renewable Energy industry.

See our latest analysis for China Datang Corporation Renewable Power

In the above chart we have measured China Datang Corporation Renewable Power's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for China Datang Corporation Renewable Power .

So How Is China Datang Corporation Renewable Power's ROCE Trending?

There are better returns on capital out there than what we're seeing at China Datang Corporation Renewable Power. The company has consistently earned 5.2% for the last five years, and the capital employed within the business has risen 54% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From China Datang Corporation Renewable Power's ROCE

As we've seen above, China Datang Corporation Renewable Power's returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 238% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

China Datang Corporation Renewable Power does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

While China Datang Corporation Renewable Power 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.