Returns Are Gaining Momentum At Zhengzhou Coal Mining Machinery Group (SHSE:601717)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So on that note, Zhengzhou Coal Mining Machinery Group (SHSE:601717) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Zhengzhou Coal Mining Machinery Group:

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

0.14 = CN¥4.4b ÷ (CN¥49b - CN¥18b) (Based on the trailing twelve months to March 2024).

So, Zhengzhou Coal Mining Machinery Group has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 6.0% it's much better.

Check out our latest analysis for Zhengzhou Coal Mining Machinery Group

Above you can see how the current ROCE for Zhengzhou Coal Mining Machinery Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Zhengzhou Coal Mining Machinery Group .

How Are Returns Trending?

The trends we've noticed at Zhengzhou Coal Mining Machinery Group are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The amount of capital employed has increased too, by 83%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Zhengzhou Coal Mining Machinery Group's ROCE

In summary, it's great to see that Zhengzhou Coal Mining Machinery Group can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 269% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Zhengzhou Coal Mining Machinery Group that you might find interesting.

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.