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

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Zhongjin GoldLtd (SHSE:600489) so let's look a bit deeper.

Understanding 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. Analysts use this formula to calculate it for Zhongjin GoldLtd:

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

0.15 = CN¥6.0b ÷ (CN¥56b - CN¥16b) (Based on the trailing twelve months to September 2024).

So, Zhongjin GoldLtd has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 6.8% 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, you can check out the forecasts from the analysts covering Zhongjin GoldLtd for free.

So How Is Zhongjin GoldLtd's ROCE Trending?

Investors would be pleased with what's happening at Zhongjin GoldLtd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 69% 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 28%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Zhongjin GoldLtd's ROCE

To sum it up, Zhongjin GoldLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 80% return over the last five years. In light of that, we think it's worth looking further into this stock because if Zhongjin GoldLtd can keep these trends up, it could have a bright future ahead.

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

While Zhongjin GoldLtd 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.