If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Pan Asia Environmental Protection Group (HKG:556) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Pan Asia Environmental Protection Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.011 = CN¥13m ÷ (CN¥1.3b - CN¥134m) (Based on the trailing twelve months to December 2023).
So, Pan Asia Environmental Protection Group has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 7.5%.
View our latest analysis for Pan Asia Environmental Protection Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for Pan Asia Environmental Protection Group's ROCE against it's prior returns. If you'd like to look at how Pan Asia Environmental Protection Group has performed in the past in other metrics, you can view this free graph of Pan Asia Environmental Protection Group's past earnings, revenue and cash flow.
So How Is Pan Asia Environmental Protection Group's ROCE Trending?
We're delighted to see that Pan Asia Environmental Protection Group is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 1.1% on its capital. While returns have increased, the amount of capital employed by Pan Asia Environmental Protection Group has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
The Key Takeaway
To bring it all together, Pan Asia Environmental Protection Group has done well to increase the returns it's generating from its capital employed. Given the stock has declined 63% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.
One more thing: We've identified 3 warning signs with Pan Asia Environmental Protection Group (at least 1 which is a bit concerning) , and understanding them would certainly be useful.
While Pan Asia Environmental Protection 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.