Sichuan Anning Iron and TitaniumLtd (SZSE:002978) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Sichuan Anning Iron and TitaniumLtd (SZSE:002978), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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 Sichuan Anning Iron and TitaniumLtd is:

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

0.11 = CN¥977m ÷ (CN¥9.5b - CN¥968m) (Based on the trailing twelve months to December 2024).

Thus, Sichuan Anning Iron and TitaniumLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Metals and Mining industry.

Check out our latest analysis for Sichuan Anning Iron and TitaniumLtd

Above you can see how the current ROCE for Sichuan Anning Iron and TitaniumLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Sichuan Anning Iron and TitaniumLtd .

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't look fantastic because it's fallen from 22% five years ago, while the business's capital employed increased by 236%. Usually this isn't ideal, but given Sichuan Anning Iron and TitaniumLtd conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Sichuan Anning Iron and TitaniumLtd might not have received a full period of earnings contribution from it. Additionally, we found that Sichuan Anning Iron and TitaniumLtd's most recent EBIT figure is around the same as the prior year, so we'd attribute the drop in ROCE mostly to the capital raise.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by Sichuan Anning Iron and TitaniumLtd's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 14% in the last three years. Therefore based on the analysis done in this article, we don't think Sichuan Anning Iron and TitaniumLtd has the makings of a multi-bagger.

On a final note, we've found 2 warning signs for Sichuan Anning Iron and TitaniumLtd that we think you should be aware of.

While Sichuan Anning Iron and TitaniumLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.