Stock Analysis

Shenzhen Zhongjin Lingnan Nonfemet (SZSE:000060) Is Reinvesting At Lower Rates Of Return

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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Shenzhen Zhongjin Lingnan Nonfemet (SZSE:000060) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. The formula for this calculation on Shenzhen Zhongjin Lingnan Nonfemet is:

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

0.047 = CN¥1.5b ÷ (CN¥45b - CN¥13b) (Based on the trailing twelve months to September 2023).

Therefore, Shenzhen Zhongjin Lingnan Nonfemet has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 6.5%.

Check out our latest analysis for Shenzhen Zhongjin Lingnan Nonfemet

SZSE:000060 Return on Capital Employed March 26th 2024

In the above chart we have measured Shenzhen Zhongjin Lingnan Nonfemet's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shenzhen Zhongjin Lingnan Nonfemet .

What Does the ROCE Trend For Shenzhen Zhongjin Lingnan Nonfemet Tell Us?

In terms of Shenzhen Zhongjin Lingnan Nonfemet's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 11%, but since then they've fallen to 4.7%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that Shenzhen Zhongjin Lingnan Nonfemet is reinvesting in the business, but returns have been falling. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Shenzhen Zhongjin Lingnan Nonfemet (of which 1 is concerning!) that you should know about.

While Shenzhen Zhongjin Lingnan Nonfemet isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Shenzhen Zhongjin Lingnan Nonfemet is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.