The Return Trends At Shandong Nanshan AluminiumLtd (SHSE:600219) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. With that in mind, we've noticed some promising trends at Shandong Nanshan AluminiumLtd (SHSE:600219) so let's look a bit deeper.

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 Shandong Nanshan AluminiumLtd is:

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

0.067 = CN¥3.6b ÷ (CN¥68b - CN¥15b) (Based on the trailing twelve months to March 2024).

Therefore, Shandong Nanshan AluminiumLtd has an ROCE of 6.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.7%.

View our latest analysis for Shandong Nanshan AluminiumLtd

In the above chart we have measured Shandong Nanshan AluminiumLtd'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 Shandong Nanshan AluminiumLtd .

What Can We Tell From Shandong Nanshan AluminiumLtd's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 24% more capital is being employed now too. So we're very much inspired by what we're seeing at Shandong Nanshan AluminiumLtd thanks to its ability to profitably reinvest capital.

What We Can Learn From Shandong Nanshan AluminiumLtd's ROCE

All in all, it's terrific to see that Shandong Nanshan AluminiumLtd is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 89% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 2 warning signs for Shandong Nanshan AluminiumLtd you'll probably want to know about.

While Shandong Nanshan AluminiumLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.