What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at China Datang Corporation Renewable Power (HKG:1798) 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)

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. Analysts use this formula to calculate it for China Datang Corporation Renewable Power:

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

0.056 = CN¥4.8b ÷ (CN¥108b - CN¥23b) (Based on the trailing twelve months to September 2024).

So, China Datang Corporation Renewable Power has an ROCE of 5.6%. On its own, that's a low figure but it's around the 6.9% average generated by the Renewable Energy industry.

Above you can see how the current ROCE for China Datang Corporation Renewable Power compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for China Datang Corporation Renewable Power .

The Trend Of ROCE

In terms of China Datang Corporation Renewable Power's historical ROCE trend, it doesn't exactly demand attention. The company has employed 58% more capital in the last five years, and the returns on that capital have remained stable at 5.6%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On China Datang Corporation Renewable Power's ROCE

As we've seen above, China Datang Corporation Renewable Power's returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 204% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we found 2 warning signs for China Datang Corporation Renewable Power (1 is a bit unpleasant) you should be aware of.

While China Datang Corporation Renewable Power 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.