Anhui Anfu Battery TechnologyLtd (SHSE:603031) Is Investing Its Capital With Increasing Efficiency

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Anhui Anfu Battery TechnologyLtd (SHSE:603031) looks great, so lets see what the trend can tell us.

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. To calculate this metric for Anhui Anfu Battery TechnologyLtd, this is the formula:

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

0.21 = CN¥936m ÷ (CN¥6.6b - CN¥2.1b) (Based on the trailing twelve months to March 2024).

Thus, Anhui Anfu Battery TechnologyLtd has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 6.7% earned by companies in a similar industry.

Check out our latest analysis for Anhui Anfu Battery TechnologyLtd

In the above chart we have measured Anhui Anfu Battery TechnologyLtd'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 analyst report for Anhui Anfu Battery TechnologyLtd .

The Trend Of ROCE

Investors would be pleased with what's happening at Anhui Anfu Battery TechnologyLtd. The data shows that returns on capital have increased substantially over the last five years to 21%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 625%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 32%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

All in all, it's terrific to see that Anhui Anfu Battery TechnologyLtd is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 2 warning signs with Anhui Anfu Battery TechnologyLtd and understanding them should be part of your investment process.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.