What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Zhejiang Provincial New Energy Investment Group (SHSE:600032) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Zhejiang Provincial New Energy Investment Group, this is the formula:

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

0.04 = CN¥1.8b ÷ (CN¥51b - CN¥6.7b) (Based on the trailing twelve months to September 2023).

Thus, Zhejiang Provincial New Energy Investment Group has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 5.6%.

See our latest analysis for Zhejiang Provincial New Energy Investment Group

In the above chart we have measured Zhejiang Provincial New Energy Investment Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Zhejiang Provincial New Energy Investment Group here for free.

So How Is Zhejiang Provincial New Energy Investment Group's ROCE Trending?

The returns on capital haven't changed much for Zhejiang Provincial New Energy Investment Group in recent years. Over the past five years, ROCE has remained relatively flat at around 4.0% and the business has deployed 233% more capital into its operations. 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.

Our Take On Zhejiang Provincial New Energy Investment Group's ROCE

Long story short, while Zhejiang Provincial New Energy Investment Group has been reinvesting its capital, the returns that it's generating haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 32% in the last year. Therefore based on the analysis done in this article, we don't think Zhejiang Provincial New Energy Investment Group has the makings of a multi-bagger.

If you'd like to know more about Zhejiang Provincial New Energy Investment Group, we've spotted 4 warning signs, and 1 of them is potentially serious.

While Zhejiang Provincial New Energy Investment Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.