Explore China Resources Gas Group's Fair Values from the Community and select yours

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at China Resources Gas Group (HKG:1193) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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 China Resources Gas Group, this is the formula:

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

0.083 = HK$6.5b ÷ (HK$132b - HK$54b) (Based on the trailing twelve months to December 2024).

So, China Resources Gas Group has an ROCE of 8.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.3%.

Check out our latest analysis for China Resources Gas Group

Above you can see how the current ROCE for China Resources Gas Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for China Resources Gas Group .

What Can We Tell From China Resources Gas Group's ROCE Trend?

On the surface, the trend of ROCE at China Resources Gas Group doesn't inspire confidence. Around five years ago the returns on capital were 15%, but since then they've fallen to 8.3%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Another thing to note, China Resources Gas Group has a high ratio of current liabilities to total assets of 41%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

To conclude, we've found that China Resources Gas Group is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 37% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

China Resources Gas Group does have some risks though, and we've spotted 1 warning sign for China Resources Gas Group that you might be interested in.

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.

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.