Stock Analysis

Why The 22% Return On Capital At Xinxiang Richful Lube AdditiveLtd (SZSE:300910) Should Have Your Attention

SZSE:300910
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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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Xinxiang Richful Lube AdditiveLtd's (SZSE:300910) returns on capital, so let's have a look.

Understanding 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 Xinxiang Richful Lube AdditiveLtd, this is the formula:

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

0.22 = CN¥691m ÷ (CN¥3.6b - CN¥439m) (Based on the trailing twelve months to March 2024).

Therefore, Xinxiang Richful Lube AdditiveLtd has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 5.5%.

See our latest analysis for Xinxiang Richful Lube AdditiveLtd

roce
SZSE:300910 Return on Capital Employed June 19th 2024

In the above chart we have measured Xinxiang Richful Lube AdditiveLtd's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Xinxiang Richful Lube AdditiveLtd .

How Are Returns Trending?

The trends we've noticed at Xinxiang Richful Lube AdditiveLtd are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 485%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Xinxiang Richful Lube AdditiveLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Xinxiang Richful Lube AdditiveLtd has. Given the stock has declined 17% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Xinxiang Richful Lube AdditiveLtd does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Xinxiang Richful Lube AdditiveLtd is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Valuation is complex, but we're helping make it simple.

Find out whether Xinxiang Richful Lube AdditiveLtd is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.

Valuation is complex, but we're helping make it simple.

Find out whether Xinxiang Richful Lube AdditiveLtd is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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