Return Trends At Baoji Titanium Industry (SHSE:600456) Aren't Appealing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. In light of that, when we looked at Baoji Titanium Industry (SHSE:600456) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. The formula for this calculation on Baoji Titanium Industry is:

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

0.076 = CN¥667m ÷ (CN¥13b - CN¥4.1b) (Based on the trailing twelve months to March 2024).

Therefore, Baoji Titanium Industry has an ROCE of 7.6%. In absolute terms, that's a low return but it's around the Metals and Mining industry average of 6.7%.

See our latest analysis for Baoji Titanium Industry

In the above chart we have measured Baoji Titanium Industry's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Baoji Titanium Industry for free.

How Are Returns Trending?

In terms of Baoji Titanium Industry's historical ROCE trend, it doesn't exactly demand attention. The company has employed 107% more capital in the last five years, and the returns on that capital have remained stable at 7.6%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Baoji Titanium Industry has done well to reduce current liabilities to 32% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From Baoji Titanium Industry's ROCE

Long story short, while Baoji Titanium Industry has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 22% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a separate note, we've found 1 warning sign for Baoji Titanium Industry you'll probably want to know about.

While Baoji Titanium Industry may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com