Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd (SZSE:000758) looks quite promising in regards to its trends of return on capital.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd, this is the formula:

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

0.082 = CN¥986m ÷ (CN¥19b - CN¥7.5b) (Based on the trailing twelve months to March 2024).

Therefore, China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd has an ROCE of 8.2%. In absolute terms, that's a low return but it's around the Metals and Mining industry average of 7.1%.

Historical performance is a great place to start when researching a stock so above you can see the gauge for China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's ROCE against it's prior returns. If you're interested in investigating China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's past further, check out this free graph covering China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd Tell Us?

China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 367% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To sum it up, China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 19% to shareholders. So with that in mind, we think the stock deserves further research.

While China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd looks impressive, no company is worth an infinite price. The intrinsic value infographic for 000758 helps visualize whether it is currently trading for a fair price.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.