Yahoo Finance Returns On Capital Signal Tricky Times Ahead For Zheneng Jinjiang Environment Holding (SGX:BWM)
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Zheneng Jinjiang Environment Holding (SGX:BWM), it didn't seem to tick all of these boxes.
Understanding 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. To calculate this metric for Zheneng Jinjiang Environment Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.051 = CN¥791m ÷ (CN¥22b - CN¥6.5b) (Based on the trailing twelve months to December 2023).
So, Zheneng Jinjiang Environment Holding has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 6.9%.
View our latest analysis for Zheneng Jinjiang Environment Holding
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Zheneng Jinjiang Environment Holding has performed in the past in other metrics, you can view this free graph of Zheneng Jinjiang Environment Holding's past earnings, revenue and cash flow.
So How Is Zheneng Jinjiang Environment Holding's ROCE Trending?
On the surface, the trend of ROCE at Zheneng Jinjiang Environment Holding doesn't inspire confidence. Around five years ago the returns on capital were 7.0%, but since then they've fallen to 5.1%. 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 may take some time before the company starts to see any change in earnings from these investments.
What We Can Learn From Zheneng Jinjiang Environment Holding's ROCE
In summary, Zheneng Jinjiang Environment Holding is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 50% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Zheneng Jinjiang Environment Holding has the makings of a multi-bagger.
If you'd like to know more about Zheneng Jinjiang Environment Holding, we've spotted 4 warning signs, and 2 of them are a bit unpleasant.
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.
