Here's What To Make Of Anhui HeliLtd's (SHSE:600761) Decelerating Rates Of Return

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, the ROCE of Anhui HeliLtd (SHSE:600761) looks decent, right now, so lets see what the trend of returns can tell us.

What Is 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. To calculate this metric for Anhui HeliLtd, this is the formula:

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

0.12 = CN¥1.5b ÷ (CN¥18b - CN¥6.4b) (Based on the trailing twelve months to June 2024).

Therefore, Anhui HeliLtd has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Machinery industry.

See our latest analysis for Anhui HeliLtd

Above you can see how the current ROCE for Anhui HeliLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Anhui HeliLtd .

What Does the ROCE Trend For Anhui HeliLtd Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 124% more capital in the last five years, and the returns on that capital have remained stable at 12%. 12% is a pretty standard return, and it provides some comfort knowing that Anhui HeliLtd 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.

In Conclusion...

The main thing to remember is that Anhui HeliLtd has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 137% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Anhui HeliLtd does have some risks though, and we've spotted 2 warning signs for Anhui HeliLtd that you might be interested in.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.