Returns Are Gaining Momentum At Nanjing Hanrui CobaltLtd (SZSE:300618)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 when we looked at Nanjing Hanrui CobaltLtd (SZSE:300618) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Nanjing Hanrui CobaltLtd:

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

0.062 = CN¥356m ÷ (CN¥8.8b - CN¥3.1b) (Based on the trailing twelve months to September 2024).

Thus, Nanjing Hanrui CobaltLtd has an ROCE of 6.2%. In absolute terms, that's a low return but it's around the Metals and Mining industry average of 6.8%.

Check out our latest analysis for Nanjing Hanrui CobaltLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Nanjing Hanrui CobaltLtd.

What Can We Tell From Nanjing Hanrui CobaltLtd's ROCE Trend?

We're delighted to see that Nanjing Hanrui CobaltLtd is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 6.2% on its capital. In addition to that, Nanjing Hanrui CobaltLtd is employing 147% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Nanjing Hanrui CobaltLtd's ROCE

In summary, it's great to see that Nanjing Hanrui CobaltLtd has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 47% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

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.

While Nanjing Hanrui CobaltLtd 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.