Returns Are Gaining Momentum At Concord New Energy Group (HKG:182)

By
Simply Wall St
Published
April 07, 2022
SEHK:182
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So when we looked at Concord New Energy Group (HKG:182) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Concord New Energy Group:

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

0.053 = CN¥965m ÷ (CN¥24b - CN¥5.7b) (Based on the trailing twelve months to December 2021).

So, Concord New Energy Group has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 6.8%.

Check out our latest analysis for Concord New Energy Group

roce
SEHK:182 Return on Capital Employed April 7th 2022

In the above chart we have measured Concord New Energy Group'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 report on analyst forecasts for the company.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 5.3%. The amount of capital employed has increased too, by 114%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 24%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Key Takeaway

To sum it up, Concord New Energy Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 164% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing: We've identified 4 warning signs with Concord New Energy Group (at least 1 which makes us a bit uncomfortable) , and understanding them would certainly be useful.

While Concord New Energy Group 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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