Fuyao Glass Industry Group (SHSE:600660) Is Looking To Continue Growing Its Returns On Capital

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Fuyao Glass Industry Group (SHSE:600660) and its trend of ROCE, we really liked what we saw.

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 Fuyao Glass Industry Group:

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

0.18 = CN¥7.9b ÷ (CN¥61b - CN¥18b) (Based on the trailing twelve months to September 2024).

So, Fuyao Glass Industry Group has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 7.0% it's much better.

Check out our latest analysis for Fuyao Glass Industry Group

Above you can see how the current ROCE for Fuyao Glass Industry Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Fuyao Glass Industry Group for free.

How Are Returns Trending?

Fuyao Glass Industry Group is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 81% more capital is being employed now too. So we're very much inspired by what we're seeing at Fuyao Glass Industry Group thanks to its ability to profitably reinvest capital.

One more thing to note, Fuyao Glass Industry Group has decreased current liabilities to 29% 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.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Fuyao Glass Industry Group has. And a remarkable 167% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Fuyao Glass Industry Group can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Fuyao Glass Industry Group that we think you should be aware of.

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.