Guangdong Huiyun Titanium Industry's (SZSE:300891) Returns On Capital Not Reflecting Well On The Business

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Although, when we looked at Guangdong Huiyun Titanium Industry (SZSE:300891), it didn't seem to tick all of these boxes.

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

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 Huiyun Titanium Industry:

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

0.026 = CN¥49m ÷ (CN¥2.6b - CN¥761m) (Based on the trailing twelve months to March 2024).

So, Guangdong Huiyun Titanium Industry has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 5.5%.

See our latest analysis for Guangdong Huiyun Titanium Industry

Historical performance is a great place to start when researching a stock so above you can see the gauge for Guangdong Huiyun Titanium Industry's ROCE against it's prior returns. If you'd like to look at how Guangdong Huiyun Titanium Industry has performed in the past in other metrics, you can view this free graph of Guangdong Huiyun Titanium Industry's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Guangdong Huiyun Titanium Industry's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 2.6% from 14% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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 Bottom Line

In summary, Guangdong Huiyun Titanium Industry is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 60% over the last three years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Guangdong Huiyun Titanium Industry does have some risks though, and we've spotted 3 warning signs for Guangdong Huiyun Titanium Industry that you might be interested in.

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.