The Return Trends At Xiamen TungstenLtd (SHSE:600549) Look Promising

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Xiamen TungstenLtd's (SHSE:600549) returns on capital, so let's have a look.

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

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. Analysts use this formula to calculate it for Xiamen TungstenLtd:

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

0.11 = CN¥3.1b ÷ (CN¥41b - CN¥14b) (Based on the trailing twelve months to June 2024).

Therefore, Xiamen TungstenLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 7.0% it's much better.

View our latest analysis for Xiamen TungstenLtd

Above you can see how the current ROCE for Xiamen TungstenLtd 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 Xiamen TungstenLtd for free.

What Can We Tell From Xiamen TungstenLtd's ROCE Trend?

Xiamen TungstenLtd is displaying some positive trends. 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, 117% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 34%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Xiamen TungstenLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Xiamen TungstenLtd has. And with a respectable 53% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Xiamen TungstenLtd can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Xiamen TungstenLtd that you might find interesting.

While Xiamen TungstenLtd 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.