Hubei Feilihua Quartz Glass (SZSE:300395) May Have Issues Allocating Its Capital

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 Hubei Feilihua Quartz Glass (SZSE:300395), 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 Hubei Feilihua Quartz Glass is:

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

0.12 = CN¥538m ÷ (CN¥5.4b - CN¥874m) (Based on the trailing twelve months to September 2023).

Therefore, Hubei Feilihua Quartz Glass has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 5.9% it's much better.

See our latest analysis for Hubei Feilihua Quartz Glass

Above you can see how the current ROCE for Hubei Feilihua Quartz Glass 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 Hubei Feilihua Quartz Glass .

How Are Returns Trending?

We weren't thrilled with the trend because Hubei Feilihua Quartz Glass' ROCE has reduced by 28% over the last five years, while the business employed 348% more capital. Usually this isn't ideal, but given Hubei Feilihua Quartz Glass conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Hubei Feilihua Quartz Glass' earnings and if they change as a result from the capital raise.

Our Take On Hubei Feilihua Quartz Glass' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Hubei Feilihua Quartz Glass is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 144% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you'd like to know about the risks facing Hubei Feilihua Quartz Glass, we've discovered 1 warning sign that 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.