Investors Could Be Concerned With CNNC Hua Yuan Titanium Dioxide's (SZSE:002145) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating CNNC Hua Yuan Titanium Dioxide (SZSE:002145), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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 CNNC Hua Yuan Titanium Dioxide is:

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

0.019 = CN¥260m ÷ (CN¥19b - CN¥5.4b) (Based on the trailing twelve months to March 2024).

Thus, CNNC Hua Yuan Titanium Dioxide has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 5.5%.

See our latest analysis for CNNC Hua Yuan Titanium Dioxide

Historical performance is a great place to start when researching a stock so above you can see the gauge for CNNC Hua Yuan Titanium Dioxide'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 CNNC Hua Yuan Titanium Dioxide.

What Does the ROCE Trend For CNNC Hua Yuan Titanium Dioxide Tell Us?

In terms of CNNC Hua Yuan Titanium Dioxide's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 15% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From CNNC Hua Yuan Titanium Dioxide's ROCE

To conclude, we've found that CNNC Hua Yuan Titanium Dioxide is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 34% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for CNNC Hua Yuan Titanium Dioxide (of which 1 doesn't sit too well with us!) that you should 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.

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