Returns On Capital At Shaanxi Sirui Advanced Materials (SHSE:688102) Have Stalled

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Shaanxi Sirui Advanced Materials (SHSE:688102), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Shaanxi Sirui Advanced Materials is:

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

0.09 = CN¥116m ÷ (CN¥1.6b - CN¥346m) (Based on the trailing twelve months to December 2023).

So, Shaanxi Sirui Advanced Materials has an ROCE of 9.0%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 6.5%.

See our latest analysis for Shaanxi Sirui Advanced Materials

In the above chart we have measured Shaanxi Sirui Advanced Materials' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Shaanxi Sirui Advanced Materials .

So How Is Shaanxi Sirui Advanced Materials' ROCE Trending?

In terms of Shaanxi Sirui Advanced Materials' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.0% for the last five years, and the capital employed within the business has risen 286% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Shaanxi Sirui Advanced Materials has done well to reduce current liabilities to 21% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Shaanxi Sirui Advanced Materials' ROCE

In conclusion, Shaanxi Sirui Advanced Materials has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly then, the total return to shareholders over the last year has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing, we've spotted 1 warning sign facing Shaanxi Sirui Advanced Materials that you might find interesting.

While Shaanxi Sirui Advanced Materials 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.