Asia-potash International Investment (Guangzhou)Co.Ltd (SZSE:000893) Is Looking To Continue Growing Its Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. 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.

Understanding 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. 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)

0.062 = CN¥927m ÷ (CN¥17b - CN¥2.6b) (Based on the trailing twelve months to September 2024).

So, Asia-potash International Investment (Guangzhou)Co.Ltd has an ROCE of 6.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.5%.

View 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Asia-potash International Investment (Guangzhou)Co.Ltd .

What Does the ROCE Trend For Asia-potash International Investment (Guangzhou)Co.Ltd Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.2%. 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 280%. 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.

What We Can Learn From 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. And a remarkable 210% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

Like most companies, Asia-potash International Investment (Guangzhou)Co.Ltd does come with some risks, and we've found 1 warning sign that you should be aware of.

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.