Returns On Capital Are Showing Encouraging Signs At Zhongjin GoldLtd (SHSE:600489)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Zhongjin GoldLtd (SHSE:600489) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Zhongjin GoldLtd, this is the formula:

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

0.14 = CN¥5.2b ÷ (CN¥57b - CN¥19b) (Based on the trailing twelve months to June 2024).

So, Zhongjin GoldLtd has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 7.1% generated by the Metals and Mining industry.

View our latest analysis for Zhongjin GoldLtd

Above you can see how the current ROCE for Zhongjin GoldLtd 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 Zhongjin GoldLtd for free.

How Are Returns Trending?

We like the trends that we're seeing from Zhongjin GoldLtd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The amount of capital employed has increased too, by 65%. So we're very much inspired by what we're seeing at Zhongjin GoldLtd thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Zhongjin GoldLtd 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. Since the stock has returned a solid 48% 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.

One more thing, we've spotted 1 warning sign facing Zhongjin GoldLtd that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.