Investors Will Want JiaoZuo WanFang Aluminum Manufacturing's (SZSE:000612) Growth In ROCE To Persist

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at JiaoZuo WanFang Aluminum Manufacturing (SZSE:000612) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for JiaoZuo WanFang Aluminum Manufacturing:

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

0.11 = CN¥658m ÷ (CN¥8.1b - CN¥1.9b) (Based on the trailing twelve months to March 2024).

Thus, JiaoZuo WanFang Aluminum Manufacturing has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.7% generated by the Metals and Mining industry.

See our latest analysis for JiaoZuo WanFang Aluminum Manufacturing

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of JiaoZuo WanFang Aluminum Manufacturing.

So How Is JiaoZuo WanFang Aluminum Manufacturing's ROCE Trending?

We're delighted to see that JiaoZuo WanFang Aluminum Manufacturing is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 11% on its capital. In addition to that, JiaoZuo WanFang Aluminum Manufacturing is employing 31% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, JiaoZuo WanFang Aluminum Manufacturing has decreased current liabilities to 24% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From JiaoZuo WanFang Aluminum Manufacturing's ROCE

Overall, JiaoZuo WanFang Aluminum Manufacturing gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Considering the stock has delivered 25% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to continue researching JiaoZuo WanFang Aluminum Manufacturing, you might be interested to know about the 2 warning signs that our analysis has discovered.

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.