Returns On Capital Signal Tricky Times Ahead For Ningbo Jintian Copper (Group) (SHSE:601609)

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Ningbo Jintian Copper (Group) (SHSE:601609) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. The formula for this calculation on Ningbo Jintian Copper (Group) is:

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

0.071 = CN¥1.2b ÷ (CN¥27b - CN¥10b) (Based on the trailing twelve months to September 2024).

So, Ningbo Jintian Copper (Group) has an ROCE of 7.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.7%.

See our latest analysis for Ningbo Jintian Copper (Group)

In the above chart we have measured Ningbo Jintian Copper (Group)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Ningbo Jintian Copper (Group) for free.

So How Is Ningbo Jintian Copper (Group)'s ROCE Trending?

On the surface, the trend of ROCE at Ningbo Jintian Copper (Group) doesn't inspire confidence. To be more specific, ROCE has fallen from 12% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Ningbo Jintian Copper (Group) has done well to pay down its current liabilities to 38% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On Ningbo Jintian Copper (Group)'s ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Ningbo Jintian Copper (Group). These growth trends haven't led to growth returns though, since the stock has fallen 13% over the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you'd like to know more about Ningbo Jintian Copper (Group), we've spotted 2 warning signs, and 1 of them is potentially serious.

While Ningbo Jintian Copper (Group) 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.