Inner Mongolia Xingye Silver &Tin MiningLtd (SZSE:000426) Knows How To Allocate Capital Effectively

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Speaking of which, we noticed some great changes in Inner Mongolia Xingye Silver &Tin MiningLtd's (SZSE:000426) returns on capital, so let's have a 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. To calculate this metric for Inner Mongolia Xingye Silver &Tin MiningLtd, this is the formula:

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

0.25 = CN¥2.2b ÷ (CN¥11b - CN¥2.5b) (Based on the trailing twelve months to September 2024).

So, Inner Mongolia Xingye Silver &Tin MiningLtd has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 6.7%.

See our latest analysis for Inner Mongolia Xingye Silver &Tin MiningLtd

In the above chart we have measured Inner Mongolia Xingye Silver &Tin MiningLtd'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 Inner Mongolia Xingye Silver &Tin MiningLtd .

What Does the ROCE Trend For Inner Mongolia Xingye Silver &Tin MiningLtd Tell Us?

The trends we've noticed at Inner Mongolia Xingye Silver &Tin MiningLtd are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 25%. 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 45%. So we're very much inspired by what we're seeing at Inner Mongolia Xingye Silver &Tin MiningLtd thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Inner Mongolia Xingye Silver &Tin MiningLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 213% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 000426 that compares the share price and estimated value.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.