Zhongjin GoldLtd (SHSE:600489) Shareholders Will Want The ROCE Trajectory To Continue

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. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Zhongjin GoldLtd's (SHSE:600489) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.11 = CN¥3.8b ÷ (CN¥54b - CN¥18b) (Based on the trailing twelve months to September 2023).

Therefore, Zhongjin GoldLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Metals and Mining industry.

See 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Zhongjin GoldLtd .

How Are Returns Trending?

The trends we've noticed at Zhongjin GoldLtd are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 58% more capital is being employed now too. So we're very much inspired by what we're seeing at Zhongjin GoldLtd thanks to its ability to profitably reinvest capital.

What We Can Learn From Zhongjin GoldLtd's ROCE

All in all, it's terrific to see that Zhongjin GoldLtd is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 45% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Zhongjin GoldLtd does have some risks though, and we've spotted 1 warning sign for Zhongjin GoldLtd that you might be interested in.

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.