There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Jinneng Holding Shanxi Electric PowerLTD's (SZSE:000767) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Jinneng Holding Shanxi Electric PowerLTD, this is the formula:

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

0.028 = CN¥1.1b ÷ (CN¥60b - CN¥21b) (Based on the trailing twelve months to June 2023).

So, Jinneng Holding Shanxi Electric PowerLTD has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 5.8%.

View our latest analysis for Jinneng Holding Shanxi Electric PowerLTD

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jinneng Holding Shanxi Electric PowerLTD's ROCE against it's prior returns. If you'd like to look at how Jinneng Holding Shanxi Electric PowerLTD has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Jinneng Holding Shanxi Electric PowerLTD's ROCE Trend?

Jinneng Holding Shanxi Electric PowerLTD has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 2.8% on its capital. And unsurprisingly, like most companies trying to break into the black, Jinneng Holding Shanxi Electric PowerLTD is utilizing 33% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On Jinneng Holding Shanxi Electric PowerLTD's ROCE

Overall, Jinneng Holding Shanxi Electric PowerLTD gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 8.3% to shareholders. So with that in mind, we think the stock deserves further research.

Like most companies, Jinneng Holding Shanxi Electric PowerLTD does come with some risks, and we've found 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.