CGN New Energy Holdings (HKG:1811) Is Looking To Continue Growing Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at CGN New Energy Holdings (HKG:1811) so let's look a bit deeper.

We've discovered 2 warning signs about CGN New Energy Holdings. View them for free.

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. The formula for this calculation on CGN New Energy Holdings is:

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

0.084 = US$528m ÷ (US$8.7b - US$2.4b) (Based on the trailing twelve months to December 2024).

Thus, CGN New Energy Holdings has an ROCE of 8.4%. On its own that's a low return, but compared to the average of 6.5% generated by the Renewable Energy industry, it's much better.

See our latest analysis for CGN New Energy Holdings

In the above chart we have measured CGN New Energy Holdings' 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 CGN New Energy Holdings .

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.4%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 65%. So we're very much inspired by what we're seeing at CGN New Energy Holdings thanks to its ability to profitably reinvest capital.

The Bottom Line On CGN New Energy 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 CGN New Energy Holdings has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 90% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about CGN New Energy Holdings, we've spotted 2 warning signs, and 1 of them is a bit concerning.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.