Asia-potash International Investment (Guangzhou)Co.Ltd (SZSE:000893) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Asia-potash International Investment (Guangzhou)Co.Ltd's (SZSE:000893) returns on capital, so let's have a look.

What Is 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. The formula for this calculation on Asia-potash International Investment (Guangzhou)Co.Ltd is:

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

0.064 = CN¥939m ÷ (CN¥17b - CN¥2.2b) (Based on the trailing twelve months to June 2024).

So, Asia-potash International Investment (Guangzhou)Co.Ltd has an ROCE of 6.4%. In absolute terms, that's a low return but it's around the Chemicals industry average of 5.5%.

Check out our latest analysis for Asia-potash International Investment (Guangzhou)Co.Ltd

Above you can see how the current ROCE for Asia-potash International Investment (Guangzhou)Co.Ltd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Asia-potash International Investment (Guangzhou)Co.Ltd for free.

So How Is Asia-potash International Investment (Guangzhou)Co.Ltd's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.4%. The amount of capital employed has increased too, by 276%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Asia-potash International Investment (Guangzhou)Co.Ltd's ROCE

To sum it up, Asia-potash International Investment (Guangzhou)Co.Ltd 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 169% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 2 warning signs with Asia-potash International Investment (Guangzhou)Co.Ltd (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.