Returns Are Gaining Momentum At Xinjiang Baodi Mining (SHSE:601121)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Xinjiang Baodi Mining (SHSE:601121) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Xinjiang Baodi Mining:

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

0.068 = CN¥356m ÷ (CN¥6.4b - CN¥1.1b) (Based on the trailing twelve months to September 2024).

Thus, Xinjiang Baodi Mining has an ROCE of 6.8%. Even though it's in line with the industry average of 6.8%, it's still a low return by itself.

View our latest analysis for Xinjiang Baodi Mining

Historical performance is a great place to start when researching a stock so above you can see the gauge for Xinjiang Baodi Mining's ROCE against it's prior returns. If you're interested in investigating Xinjiang Baodi Mining's past further, check out this free graph covering Xinjiang Baodi Mining's past earnings, revenue and cash flow.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.8%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 193%. So we're very much inspired by what we're seeing at Xinjiang Baodi Mining thanks to its ability to profitably reinvest capital.

One more thing to note, Xinjiang Baodi Mining has decreased current liabilities to 17% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Xinjiang Baodi Mining has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Xinjiang Baodi Mining'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 Xinjiang Baodi Mining has. And since the stock has fallen 13% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 3 warning signs for Xinjiang Baodi Mining (1 shouldn't be ignored) you should be aware of.

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.