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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Guangdong Huiyun Titanium Industry (SZSE:300891) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. Analysts use this formula to calculate it for Guangdong Huiyun Titanium Industry:

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

0.14 = CN¥185m ÷ (CN¥2.1b - CN¥695m) (Based on the trailing twelve months to June 2022).

Thus, Guangdong Huiyun Titanium Industry has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Chemicals industry.

View our latest analysis for Guangdong Huiyun Titanium Industry

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're interested in investigating Guangdong Huiyun Titanium Industry's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Guangdong Huiyun Titanium Industry's ROCE Trending?

In terms of Guangdong Huiyun Titanium Industry's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 19% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Guangdong Huiyun Titanium Industry's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Guangdong Huiyun Titanium Industry is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 46% over the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Guangdong Huiyun Titanium Industry (of which 1 shouldn't be ignored!) that you should know about.

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.