Zhejiang Huayou Cobalt (SHSE:603799) Is Looking To Continue Growing Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Zhejiang Huayou Cobalt (SHSE:603799) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Zhejiang Huayou Cobalt is:

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

0.073 = CN¥5.8b ÷ (CN¥132b - CN¥53b) (Based on the trailing twelve months to September 2024).

So, Zhejiang Huayou Cobalt has an ROCE of 7.3%. In absolute terms, that's a low return, but it's much better than the Electrical industry average of 5.8%.

Check out our latest analysis for Zhejiang Huayou Cobalt

In the above chart we have measured Zhejiang Huayou Cobalt'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 Zhejiang Huayou Cobalt .

So How Is Zhejiang Huayou Cobalt's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.3%. 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 592%. So we're very much inspired by what we're seeing at Zhejiang Huayou Cobalt thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Zhejiang Huayou Cobalt has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 39% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

On a final note, we found 2 warning signs for Zhejiang Huayou Cobalt (1 can't be ignored) you should be aware of.

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.