If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So when we looked at Central New Energy Holding Group (HKG:1735) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Central New Energy Holding Group:

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

0.0038 = HK$6.3m ÷ (HK$4.4b - HK$2.7b) (Based on the trailing twelve months to June 2024).

Therefore, Central New Energy Holding Group has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 5.7%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Central New Energy Holding Group's ROCE against it's prior returns. If you're interested in investigating Central New Energy Holding Group's past further, check out this free graph covering Central New Energy Holding Group's past earnings, revenue and cash flow.

So How Is Central New Energy Holding Group's ROCE Trending?

We're delighted to see that Central New Energy Holding Group is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 0.4% on its capital. And unsurprisingly, like most companies trying to break into the black, Central New Energy Holding Group is utilizing 889% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 62% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

In Conclusion...

Long story short, we're delighted to see that Central New Energy Holding Group's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 2 warning signs facing Central New Energy Holding Group that you might find interesting.

While Central New Energy Holding Group 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.