If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. With that in mind, we've noticed some promising trends at CGN Power (HKG:1816) so let's look a bit deeper.
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 CGN Power, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.074 = CN¥25b ÷ (CN¥414b - CN¥75b) (Based on the trailing twelve months to September 2023).
So, CGN Power has an ROCE of 7.4%. In absolute terms, that's a low return but it's around the Renewable Energy industry average of 6.3%.
SEHK:1816 Return on Capital Employed February 9th 2024
In the above chart we have measured CGN Power's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From CGN Power's ROCE Trend?
CGN Power has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 42% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
What We Can Learn From CGN Power's ROCE
In summary, we're delighted to see that CGN Power has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 35% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
On a final note, we found 2 warning signs for CGN Power (1 shouldn't be ignored) you should be aware of.
While CGN 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.
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.
長期的に掛けて増加する株式を探す場合、どのような基本的なトレンドを探すべきでしょうか?一つの一般的なアプローチは、増え続ける資本利益 (ROCE) と資本利益の増加を併せ持つ企業を見つけることです。基本的にこれは、繰り返し成長できる要素を持つ企業であることを示す特徴です。しかし、Baoshan Iron&Steel(SHSE:600019)を調べた結果、現在のトレンドはマルチバッガーの模範には合わないと考えます。資本雇用における利回りが増加し、増加する資本雇用と共にある会社を見つけることは一般的な手法の1つです。これを見つけた場合、それは通常、素晴らしいビジネスモデルを持ち、多数の利益再投資機会がある企業であるということを意味します。Returns on capital employed (ROCE)とは何ですか? ROCEが何であるかわからない人のために、これは会社がビジネスで使用する資本から生み出す税引き前利益の量を測定するものです。MakeMyTripのこの計算の式は次のとおりです。Bumi Armada Berhadが前のROCEと前のパフォーマンスを比較した上図では、将来のROCEがより重要であるとされています。もし興味がある場合は、Bumi Armada Berhadの無料アナリストレポートをご覧いただけます。すなわち、会社には利益をもたらす取り組みがあり、それを再投資することができることを意味します。つまり、複利機械の特徴を持っているということです。これを念頭に置いて、中廣核電力において有望なトレンドをいくつか確認してみましょう。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。