Proya CosmeticsLtd (SHSE:603605) Knows How To Allocate Capital Effectively

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Proya CosmeticsLtd (SHSE:603605) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Proya CosmeticsLtd, this is the formula:

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

0.28 = CN¥1.5b ÷ (CN¥7.7b - CN¥2.4b) (Based on the trailing twelve months to March 2024).

Therefore, Proya CosmeticsLtd has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 9.7% earned by companies in a similar industry.

Check out our latest analysis for Proya CosmeticsLtd

Above you can see how the current ROCE for Proya CosmeticsLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Proya CosmeticsLtd for free.

What The Trend Of ROCE Can Tell Us

Proya CosmeticsLtd is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 28%. The amount of capital employed has increased too, by 178%. So we're very much inspired by what we're seeing at Proya CosmeticsLtd thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Proya CosmeticsLtd is reaping the rewards from prior investments and is growing its capital base. And a remarkable 283% total return over the last five years tells us that investors are expecting more good things to come in the future. 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, we've spotted 1 warning sign facing Proya CosmeticsLtd that you might find interesting.

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.