Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of China Nonferrous Mining (HKG:1258) looks decent, right now, so lets see what the trend of returns can tell us.
Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on China Nonferrous Mining is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = US$557m ÷ (US$4.1b - US$1.1b) (Based on the trailing twelve months to June 2023).
Therefore, China Nonferrous Mining has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 8.4% it's much better.
View our latest analysis for China Nonferrous Mining
In the above chart we have measured China Nonferrous Mining's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is China Nonferrous Mining's ROCE Trending?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 19% for the last five years, and the capital employed within the business has risen 41% in that time. 19% is a pretty standard return, and it provides some comfort knowing that China Nonferrous Mining has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Key Takeaway
In the end, China Nonferrous Mining has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 227% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
Like most companies, China Nonferrous Mining does come with some risks, and we've found 1 warning sign that you should be aware of.
While China Nonferrous Mining 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.