Returns On Capital At Beijing Jingneng Clean Energy (HKG:579) Paint An Interesting Picture

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Having said that, from a first glance at Beijing Jingneng Clean Energy (HKG:579) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Beijing Jingneng Clean Energy is:

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

0.08 = CN¥3.6b ÷ (CN¥67b - CN¥22b) (Based on the trailing twelve months to September 2020).

Therefore, Beijing Jingneng Clean Energy has an ROCE of 8.0%. In absolute terms, that's a low return but it's around the Renewable Energy industry average of 7.5%.

Check out our latest analysis for Beijing Jingneng Clean Energy

In the above chart we have measured Beijing Jingneng Clean Energy'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 report for Beijing Jingneng Clean Energy.

What Does the ROCE Trend For Beijing Jingneng Clean Energy Tell Us?

There are better returns on capital out there than what we're seeing at Beijing Jingneng Clean Energy. Over the past five years, ROCE has remained relatively flat at around 8.0% and the business has deployed 40% more capital into its operations. 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.

Our Take On Beijing Jingneng Clean Energy's ROCE

Long story short, while Beijing Jingneng Clean Energy has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 24% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a separate note, we've found 2 warning signs for Beijing Jingneng Clean Energy you'll probably want to know about.

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. 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.
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