Tianshan Aluminum GroupLtd (SZSE:002532) Has More To Do To Multiply In Value Going Forward

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. That's why when we briefly looked at Tianshan Aluminum GroupLtd's (SZSE:002532) ROCE trend, we were pretty happy with what we saw.

Understanding 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. To calculate this metric for Tianshan Aluminum GroupLtd, this is the formula:

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

0.13 = CN¥4.2b ÷ (CN¥56b - CN¥23b) (Based on the trailing twelve months to June 2024).

Therefore, Tianshan Aluminum GroupLtd has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 7.1% it's much better.

See our latest analysis for Tianshan Aluminum GroupLtd

Above you can see how the current ROCE for Tianshan Aluminum GroupLtd 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 Tianshan Aluminum GroupLtd .

What Does the ROCE Trend For Tianshan Aluminum GroupLtd Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 95% in that time. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 41% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 41%, some of that risk is still prevalent.

In Conclusion...

To sum it up, Tianshan Aluminum GroupLtd has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 1.5% over the last three years for shareholders who have owned the stock in this period. So to determine if Tianshan Aluminum GroupLtd is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

On a final note, we've found 2 warning signs for Tianshan Aluminum GroupLtd that we think you should be aware of.

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.