Here's What To Make Of Datang International Power Generation's (HKG:991) Decelerating Rates Of Return

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Datang International Power Generation:

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

0.058 = CN¥13b ÷ (CN¥310b - CN¥90b) (Based on the trailing twelve months to June 2024).

Therefore, Datang International Power Generation has an ROCE of 5.8%. On its own, that's a low figure but it's around the 6.9% average generated by the Renewable Energy industry.

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'd like to look at how Datang International Power Generation has performed in the past in other metrics, you can view this free graph of Datang International Power Generation's past earnings, revenue and cash flow.

How Are Returns Trending?

Things have been pretty stable at Datang International Power Generation, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Datang International Power Generation doesn't end up being a multi-bagger in a few years time.

Our Take On Datang International Power Generation's ROCE

In a nutshell, Datang International Power Generation has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 0.6% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to continue researching Datang International Power Generation, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Datang International Power Generation 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.