Under The Bonnet, Zhongman Petroleum and Natural Gas GroupLtd's (SHSE:603619) Returns Look Impressive

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Zhongman Petroleum and Natural Gas GroupLtd's (SHSE:603619) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Zhongman Petroleum and Natural Gas GroupLtd:

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

0.24 = CN¥1.2b ÷ (CN¥8.7b - CN¥3.4b) (Based on the trailing twelve months to September 2023).

So, Zhongman Petroleum and Natural Gas GroupLtd has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 7.5% earned by companies in a similar industry.

See our latest analysis for Zhongman Petroleum and Natural Gas GroupLtd

Above you can see how the current ROCE for Zhongman Petroleum and Natural Gas GroupLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Zhongman Petroleum and Natural Gas GroupLtd .

So How Is Zhongman Petroleum and Natural Gas GroupLtd's ROCE Trending?

Investors would be pleased with what's happening at Zhongman Petroleum and Natural Gas GroupLtd. Over the last five years, returns on capital employed have risen substantially to 24%. The amount of capital employed has increased too, by 106%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

In summary, it's great to see that Zhongman Petroleum and Natural Gas GroupLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 47% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Zhongman Petroleum and Natural Gas GroupLtd can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Zhongman Petroleum and Natural Gas GroupLtd (of which 1 is potentially serious!) that you should know about.

Zhongman Petroleum and Natural Gas GroupLtd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.