Returns On Capital At Beijing Jingneng Clean Energy (HKG:579) Paint A Concerning Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Beijing Jingneng Clean Energy (HKG:579), it didn't seem to tick all of these boxes.

What is 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. To calculate this metric for Beijing Jingneng Clean Energy, this is the formula:

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

0.086 = CN¥4.7b ÷ (CN¥83b - CN¥28b) (Based on the trailing twelve months to March 2022).

So, Beijing Jingneng Clean Energy has an ROCE of 8.6%. In absolute terms, that's a low return, but it's much better than the Renewable Energy industry average of 6.7%.

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 The Trend Of ROCE Can Tell Us

In terms of Beijing Jingneng Clean Energy's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 13%, but since then they've fallen to 8.6%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

To conclude, we've found that Beijing Jingneng Clean Energy is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 2.5% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Beijing Jingneng Clean Energy does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

While Beijing Jingneng Clean Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.