Chu Kong Petroleum and Natural Gas Steel Pipe Holdings (HKG:1938) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 looked at Chu Kong Petroleum and Natural Gas Steel Pipe Holdings (HKG:1938) and its trend of ROCE, we really liked what we saw.

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What Is 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. Analysts use this formula to calculate it for Chu Kong Petroleum and Natural Gas Steel Pipe Holdings:

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

0.027 = CN¥67m ÷ (CN¥6.3b - CN¥3.8b) (Based on the trailing twelve months to June 2025).

Thus, Chu Kong Petroleum and Natural Gas Steel Pipe Holdings has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 6.1%.

Check out our latest analysis for Chu Kong Petroleum and Natural Gas Steel Pipe Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Chu Kong Petroleum and Natural Gas Steel Pipe Holdings.

What Does the ROCE Trend For Chu Kong Petroleum and Natural Gas Steel Pipe Holdings Tell Us?

We're delighted to see that Chu Kong Petroleum and Natural Gas Steel Pipe Holdings is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 2.7%, which is always encouraging. While returns have increased, the amount of capital employed by Chu Kong Petroleum and Natural Gas Steel Pipe Holdings has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

One more thing to note, Chu Kong Petroleum and Natural Gas Steel Pipe Holdings has decreased current liabilities to 60% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Bottom Line On Chu Kong Petroleum and Natural Gas Steel Pipe Holdings' ROCE

In summary, we're delighted to see that Chu Kong Petroleum and Natural Gas Steel Pipe Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Astute investors may have an opportunity here because the stock has declined 34% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 4 warning signs we've spotted with Chu Kong Petroleum and Natural Gas Steel Pipe Holdings (including 1 which makes us a bit uncomfortable) .

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.

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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.