Xinxiang Richful Lube AdditiveLtd (SZSE:300910) Knows How To Allocate Capital Effectively

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Xinxiang Richful Lube AdditiveLtd (SZSE:300910) we really liked what we saw.

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. 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)

0.23 = CN¥724m ÷ (CN¥3.8b - CN¥650m) (Based on the trailing twelve months to June 2024).

Therefore, Xinxiang Richful Lube AdditiveLtd has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 5.5% earned by companies in a similar industry.

Check out our latest analysis for Xinxiang Richful Lube AdditiveLtd

Above you can see how the current ROCE for Xinxiang Richful Lube AdditiveLtd 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 Xinxiang Richful Lube AdditiveLtd .

The Trend Of ROCE

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 23%. The amount of capital employed has increased too, by 375%. So we're very much inspired by what we're seeing at Xinxiang Richful Lube AdditiveLtd thanks to its ability to profitably reinvest capital.

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. Considering the stock has delivered 5.7% to its stockholders over the last three years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Xinxiang Richful Lube AdditiveLtd (of which 1 is a bit concerning!) that 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.

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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.