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Here's What To Make Of Tian Lun Gas Holdings' (HKG:1600) Decelerating Rates Of Return

Simply Wall St ·  {{timeTz}}

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Tian Lun Gas Holdings' (HKG:1600) trend of ROCE, we liked what we saw.

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

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. The formula for this calculation on Tian Lun Gas Holdings is:

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

0.10 = CN¥1.2b ÷ (CN¥16b - CN¥4.0b) (Based on the trailing twelve months to June 2022).

So, Tian Lun Gas Holdings has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 8.7% generated by the Gas Utilities industry.

View our latest analysis for Tian Lun Gas Holdings

roceSEHK:1600 Return on Capital Employed September 2nd 2022

Above you can see how the current ROCE for Tian Lun Gas Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Tian Lun Gas Holdings' ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 105% more capital in the last five years, and the returns on that capital have remained stable at 10%. Since 10% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

To sum it up, Tian Lun Gas Holdings has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 26%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you'd like to know more about Tian Lun Gas Holdings, we've spotted 3 warning signs, and 1 of them shouldn't be ignored.

While Tian Lun Gas Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

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