Guangdong Hoshion Industrial Aluminium (SZSE:002824) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, Guangdong Hoshion Industrial Aluminium (SZSE:002824) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Guangdong Hoshion Industrial Aluminium:

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

0.043 = CN¥105m ÷ (CN¥3.6b - CN¥1.2b) (Based on the trailing twelve months to September 2024).

Therefore, Guangdong Hoshion Industrial Aluminium has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 6.8%.

View our latest analysis for Guangdong Hoshion Industrial Aluminium

In the above chart we have measured Guangdong Hoshion Industrial Aluminium's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Guangdong Hoshion Industrial Aluminium .

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 4.3%. Basically the business is earning more per dollar of capital invested and in addition to that, 181% more capital is being employed now too. So we're very much inspired by what we're seeing at Guangdong Hoshion Industrial Aluminium thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Guangdong Hoshion Industrial Aluminium has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 223% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Guangdong Hoshion Industrial Aluminium does come with some risks, and we've found 2 warning signs that you should be aware of.

While Guangdong Hoshion Industrial Aluminium 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.