Zhejiang Tengy Environmental Technology's (HKG:1527) Returns On Capital Are Heading Higher

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Zhejiang Tengy Environmental Technology's (HKG:1527) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Zhejiang Tengy Environmental Technology is:

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

0.12 = CN¥115m ÷ (CN¥2.2b - CN¥1.2b) (Based on the trailing twelve months to June 2025).

Therefore, Zhejiang Tengy Environmental Technology has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 7.8% it's much better.

Check out our latest analysis for Zhejiang Tengy Environmental Technology

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

What Does the ROCE Trend For Zhejiang Tengy Environmental Technology Tell Us?

The trends we've noticed at Zhejiang Tengy Environmental Technology are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 28%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, Zhejiang Tengy Environmental Technology's current liabilities are still rather high at 55% of total assets. 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 Bottom Line On Zhejiang Tengy Environmental Technology's ROCE

All in all, it's terrific to see that Zhejiang Tengy Environmental Technology is reaping the rewards from prior investments and is growing its capital base. And with a respectable 91% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 1 warning sign for Zhejiang Tengy Environmental Technology that we think you should be aware of.

While Zhejiang Tengy Environmental Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.