If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. However, after investigating Zheneng Jinjiang Environment Holding (SGX:BWM), we don't think it's current trends fit the mold of a multi-bagger.
What Is 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. The formula for this calculation on Zheneng Jinjiang Environment Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.064 = CN¥909m ÷ (CN¥21b - CN¥7.2b) (Based on the trailing twelve months to December 2022).
Therefore, Zheneng Jinjiang Environment Holding has an ROCE of 6.4%. In absolute terms, that's a low return but it's around the Renewable Energy industry average of 7.2%.
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're interested in investigating Zheneng Jinjiang Environment Holding's past further, check out this free graph of 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. To be more specific, ROCE has fallen from 9.3% over the last five years. 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 Bottom Line On 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. And in the last five years, the stock has given away 59% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
One more thing, we've spotted 3 warning signs facing Zheneng Jinjiang Environment Holding that you might find interesting.
While Zheneng Jinjiang Environment Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.