Returns At Huaneng Power International (HKG:902) Appear To Be Weighed Down

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 Huaneng Power International (HKG:902), it didn't seem to tick all of these boxes.

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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. To calculate this metric for Huaneng Power International, this is the formula:

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

0.065 = CN¥27b ÷ (CN¥588b - CN¥169b) (Based on the trailing twelve months to March 2025).

So, Huaneng Power International has an ROCE of 6.5%. Even though it's in line with the industry average of 6.2%, it's still a low return by itself.

Check out our latest analysis for Huaneng Power International

In the above chart we have measured Huaneng Power International'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 analyst report for Huaneng Power International .

How Are Returns Trending?

In terms of Huaneng Power International's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 6.5% for the last five years, and the capital employed within the business has risen 51% 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 Huaneng Power International's ROCE

As we've seen above, Huaneng Power International's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 71% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One final note, you should learn about the 2 warning signs we've spotted with Huaneng Power International (including 1 which is a bit concerning) .

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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.