Return on equity portends difficult times for Ningbo Likong Environmental Energy Technology Co., Ltd. (SZSE:002322)

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To avoid investing in a declining business, there are several financial indicators that can provide early signs of aging. Businesses that are in decline often exhibit two underlying trends. return Capital Employed (ROCE) and Decreasing Trend base of capital employed. Ultimately, this means that the company’s return per dollar invested is decreasing, and what’s more, the base of employed capital is shrinking.And on first read, things don’t seem very good Ningbo Likong Environmental Energy Technology Co., Ltd. (SZSE:002322) Let’s see why.

What is return on capital employed (ROCE)?

For those who have never used ROCE before, it measures the “return” (pre-tax profit) that a company generates from the capital employed in its business. The formula for this calculation at Ningbo Ligong Environmental And Energy TechnologyLtd is:

Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)

0.063 = CAD 203 million ÷ (CAD 3.6 billion – CAD 357 million) (Based on the previous 12 months to September 2023).

therefore, Ningbo Ligong Environmental And Energy TechnologyLtd’s ROCE is 6.3%. This in itself is a low number, but the average for the electrical industry is around 6.5%.

See our latest analysis for Ningbo Ligong Environmental And Energy TechnologyLtd.

SZSE:002322 Return on Capital Employed on April 3, 2024

Although the past does not represent the future, it can be helpful to know how a company has performed historically. That’s why I created this graph above. If you are interested in finding out more about the past of Ningbo Ligong Environmental And Energy TechnologyLtd, check this out free A graph covering Ningbo Ligong Environmental And Energy Technology Ltd’s historical earnings, revenue and cash flow.

What can we learn from Ningbo Ligong Environmental and Energy TechnologyLtd’s ROCE trend?

When it comes to Ningbo Ligong Environmental And Energy TechnologyLtd’s historical ROCE movement, this trend doesn’t inspire confidence. Unfortunately, his return on equity has declined from 11% five years ago. Meanwhile, capital employed in operations remained roughly flat over the period. Companies exhibiting these characteristics tend not to be shrinking, but are more mature and may be facing margin pressure from competition. If this trend continues, we cannot expect Ningbo Likong Environmental Energy Technology Co., Ltd. to turn into a multibagger.

ROCE highlights for Ningbo Ligong Environmental and Energy Technology Ltd.

After all, a trend toward lower returns on the same amount of capital is usually not an indication that you’re focused on growth stocks. Investors also don’t seem too impressed, as the stock has remained flat for the past five years. There are fundamental trends in these areas that aren’t great, so consider looking elsewhere.

Finally, we discovered that 1 warning sign for Ningbo Ligong Environmental And Energy TechnologyLtd We think you should know.

Ningbo Ligong Environmental And Energy TechnologyLtd may not have the highest profitability, but check this out. free A list of companies with solid balance sheets and high return on equity.

Valuation is complex, but we help make it simple.

Check out our comprehensive analysis below to see if Ningbo Likong Environmental Energy Technology Co., Ltd. is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.

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