Datang International Power Generation (HKG:991) Hasn't Managed To Accelerate Its Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Datang International Power Generation (HKG:991) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Datang International Power Generation is:

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

0.053 = CN¥12b ÷ (CN¥306b - CN¥89b) (Based on the trailing twelve months to March 2024).

Thus, Datang International Power Generation has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 7.0%.

See our latest analysis for Datang International Power Generation

Historical performance is a great place to start when researching a stock so above you can see the gauge for Datang International Power Generation's ROCE against it's prior returns. If you're interested in investigating Datang International Power Generation's past further, check out this free graph covering Datang International Power Generation's past earnings, revenue and cash flow.

How Are Returns Trending?

There hasn't been much to report for Datang International Power Generation's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Datang International Power Generation in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line On Datang International Power Generation's ROCE

We can conclude that in regards to Datang International Power Generation's returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 7.1% 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.

One more thing, we've spotted 2 warning signs facing Datang International Power Generation that you might find interesting.

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.