Nanjing Hanrui CobaltLtd (SZSE:300618) Will Be Hoping To Turn Its Returns On Capital Around

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Nanjing Hanrui CobaltLtd (SZSE:300618) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. To calculate this metric for Nanjing Hanrui CobaltLtd, this is the formula:

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

0.057 = CN¥326m ÷ (CN¥8.7b - CN¥3.0b) (Based on the trailing twelve months to June 2024).

Therefore, Nanjing Hanrui CobaltLtd has an ROCE of 5.7%. On its own, that's a low figure but it's around the 7.1% average generated by the Metals and Mining industry.

Check out our latest analysis for Nanjing Hanrui CobaltLtd

Above you can see how the current ROCE for Nanjing Hanrui CobaltLtd 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 Nanjing Hanrui CobaltLtd .

What Does the ROCE Trend For Nanjing Hanrui CobaltLtd Tell Us?

In terms of Nanjing Hanrui CobaltLtd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 7.9% over the last five years. However it looks like Nanjing Hanrui CobaltLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

The Key Takeaway

To conclude, we've found that Nanjing Hanrui CobaltLtd is reinvesting in the business, but returns have been falling. Since the stock has declined 63% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Nanjing Hanrui CobaltLtd does have some risks though, and we've spotted 1 warning sign for Nanjing Hanrui CobaltLtd that you might be interested in.

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.

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

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.