We Like These Underlying Return On Capital Trends At Zhengzhou Coal Mining Machinery Group (SHSE:601717)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Zhengzhou Coal Mining Machinery Group's (SHSE:601717) returns on capital, so let's have a look.

Understanding 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 Zhengzhou Coal Mining Machinery Group, this is the formula:

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

0.17 = CN¥5.0b ÷ (CN¥49b - CN¥19b) (Based on the trailing twelve months to September 2024).

Thus, Zhengzhou Coal Mining Machinery Group has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 5.2% generated by the Machinery industry.

See our latest analysis for Zhengzhou Coal Mining Machinery Group

In the above chart we have measured Zhengzhou Coal Mining Machinery Group's prior ROCE against its prior performance, but the future is arguably more important. 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 .

So How Is Zhengzhou Coal Mining Machinery Group's ROCE Trending?

Investors would be pleased with what's happening at Zhengzhou Coal Mining Machinery Group. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The amount of capital employed has increased too, by 72%. So we're very much inspired by what we're seeing at Zhengzhou Coal Mining Machinery Group thanks to its ability to profitably reinvest capital.

Our Take On Zhengzhou Coal Mining Machinery Group's ROCE

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 Zhengzhou Coal Mining Machinery Group has. Since the stock has returned a staggering 146% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Zhengzhou Coal Mining Machinery Group does come with some risks, and we've found 1 warning sign that you should be aware of.

While Zhengzhou Coal Mining Machinery Group 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.