Here's What Chow Tai Seng Jewellery's (SZSE:002867) Strong Returns On Capital Mean

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, the ROCE of Chow Tai Seng Jewellery (SZSE:002867) looks attractive right now, so lets see what the trend of returns can tell us.

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

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. The formula for this calculation on Chow Tai Seng Jewellery is:

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

0.25 = CN¥1.6b ÷ (CN¥9.1b - CN¥2.7b) (Based on the trailing twelve months to June 2024).

So, Chow Tai Seng Jewellery has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 6.1% earned by companies in a similar industry.

View our latest analysis for Chow Tai Seng Jewellery

In the above chart we have measured Chow Tai Seng Jewellery'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 Chow Tai Seng Jewellery .

What Does the ROCE Trend For Chow Tai Seng Jewellery Tell Us?

It's hard not to be impressed by Chow Tai Seng Jewellery's returns on capital. Over the past five years, ROCE has remained relatively flat at around 25% and the business has deployed 51% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Chow Tai Seng Jewellery can keep this up, we'd be very optimistic about its future.

Our Take On Chow Tai Seng Jewellery's ROCE

Chow Tai Seng Jewellery has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. However, over the last five years, the stock hasn't provided much growth to shareholders in the way of total returns. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

On a separate note, we've found 1 warning sign for Chow Tai Seng Jewellery you'll probably want to know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.