Returns On Capital At Shandong Jinling Mining (SZSE:000655) Have Hit The Brakes

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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 Shandong Jinling Mining (SZSE:000655), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Shandong Jinling Mining is:

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

0.039 = CN¥138m ÷ (CN¥3.8b - CN¥248m) (Based on the trailing twelve months to December 2023).

Thus, Shandong Jinling Mining has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 6.6%.

Check out our latest analysis for Shandong Jinling Mining

Above you can see how the current ROCE for Shandong Jinling Mining compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Shandong Jinling Mining .

The Trend Of ROCE

In terms of Shandong Jinling Mining's historical ROCE trend, it doesn't exactly demand attention. The company has employed 43% more capital in the last five years, and the returns on that capital have remained stable at 3.9%. 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.

The Bottom Line On Shandong Jinling Mining's ROCE

Long story short, while Shandong Jinling Mining has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 13% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing: We've identified 2 warning signs with Shandong Jinling Mining (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

While Shandong Jinling Mining isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.