Returns Are Gaining Momentum At Jiangxi Black Cat Carbon BlackLtd (SZSE:002068)

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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Jiangxi Black Cat Carbon BlackLtd (SZSE:002068) looks quite promising in regards to its trends of return on capital.

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 Jiangxi Black Cat Carbon BlackLtd is:

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

0.0082 = CN¥38m ÷ (CN¥8.2b - CN¥3.6b) (Based on the trailing twelve months to September 2024).

Thus, Jiangxi Black Cat Carbon BlackLtd has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 5.5%.

Check out our latest analysis for Jiangxi Black Cat Carbon BlackLtd

Above you can see how the current ROCE for Jiangxi Black Cat Carbon BlackLtd 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 Jiangxi Black Cat Carbon BlackLtd .

What The Trend Of ROCE Can Tell Us

Jiangxi Black Cat Carbon BlackLtd has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.8% on its capital. And unsurprisingly, like most companies trying to break into the black, Jiangxi Black Cat Carbon BlackLtd is utilizing 43% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 43%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Jiangxi Black Cat Carbon BlackLtd has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

Our Take On Jiangxi Black Cat Carbon BlackLtd's ROCE

To the delight of most shareholders, Jiangxi Black Cat Carbon BlackLtd has now broken into profitability. Since the stock has returned a staggering 179% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Jiangxi Black Cat Carbon BlackLtd can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Jiangxi Black Cat Carbon BlackLtd that we think you should be aware of.

While Jiangxi Black Cat Carbon BlackLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.