China Datang Corporation Renewable Power (HKG:1798) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at China Datang Corporation Renewable Power (HKG:1798) and its ROCE trend, we weren't exactly thrilled.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for China Datang Corporation Renewable Power:

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

0.056 = CN¥4.8b ÷ (CN¥108b - CN¥23b) (Based on the trailing twelve months to September 2024).

So, China Datang Corporation Renewable Power has an ROCE of 5.6%. On its own, that's a low figure but it's around the 6.9% average generated by the Renewable Energy industry.

View our latest analysis for China Datang Corporation Renewable Power

Above you can see how the current ROCE for China Datang Corporation Renewable Power 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 China Datang Corporation Renewable Power .

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

The returns on capital haven't changed much for China Datang Corporation Renewable Power in recent years. The company has consistently earned 5.6% for the last five years, and the capital employed within the business has risen 58% in that time. 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.

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 181% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

China Datang Corporation Renewable Power does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) 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.