There's Been No Shortage Of Growth Recently For Sinomach Precision Industry Group's (SZSE:002046) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. 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 when we looked at Sinomach Precision Industry Group (SZSE:002046) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Sinomach Precision Industry Group is:

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

0.056 = CN¥220m ÷ (CN¥5.5b - CN¥1.6b) (Based on the trailing twelve months to September 2023).

So, Sinomach Precision Industry Group has an ROCE of 5.6%. Even though it's in line with the industry average of 6.1%, it's still a low return by itself.

Check out our latest analysis for Sinomach Precision Industry Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sinomach Precision Industry Group's ROCE against it's prior returns. If you're interested in investigating Sinomach Precision Industry Group's past further, check out this free graph covering Sinomach Precision Industry Group's past earnings, revenue and cash flow.

So How Is Sinomach Precision Industry Group'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. Over the last five years, returns on capital employed have risen substantially to 5.6%. 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 31%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

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 Sinomach Precision Industry Group has. Since the stock has only returned 11% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing Sinomach Precision Industry Group, we've discovered 2 warning signs that 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.