Returns On Capital At China Rare Earth Resources And Technology (SZSE:000831) Have Stalled

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 China Rare Earth Resources And Technology (SZSE:000831) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. Analysts use this formula to calculate it for China Rare Earth Resources And Technology:

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

0.051 = CN¥244m ÷ (CN¥5.1b - CN¥327m) (Based on the trailing twelve months to March 2024).

Therefore, China Rare Earth Resources And Technology has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 6.9%.

Check out our latest analysis for China Rare Earth Resources And Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for China Rare Earth Resources And Technology's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of China Rare Earth Resources And Technology.

So How Is China Rare Earth Resources And Technology's ROCE Trending?

There are better returns on capital out there than what we're seeing at China Rare Earth Resources And Technology. The company has consistently earned 5.1% for the last five years, and the capital employed within the business has risen 117% 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.

Our Take On China Rare Earth Resources And Technology's ROCE

In conclusion, China Rare Earth Resources And Technology has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 47% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a separate note, we've found 3 warning signs for China Rare Earth Resources And Technology you'll probably want to know about.

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.