Stock Analysis

Investors Could Be Concerned With Shanghai Zhongzhou Special Alloy Materials' (SZSE:300963) Returns On Capital

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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Shanghai Zhongzhou Special Alloy Materials (SZSE:300963) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Shanghai Zhongzhou Special Alloy Materials, this is the formula:

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

0.073 = CN¥79m ÷ (CN¥1.7b - CN¥649m) (Based on the trailing twelve months to March 2024).

So, Shanghai Zhongzhou Special Alloy Materials has an ROCE of 7.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.7%.

Check out our latest analysis for Shanghai Zhongzhou Special Alloy Materials

SZSE:300963 Return on Capital Employed May 31st 2024

Above you can see how the current ROCE for Shanghai Zhongzhou Special Alloy Materials compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shanghai Zhongzhou Special Alloy Materials .

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Shanghai Zhongzhou Special Alloy Materials doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.3% from 16% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Shanghai Zhongzhou Special Alloy Materials' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Shanghai Zhongzhou Special Alloy Materials is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 27% over the last three years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we found 3 warning signs for Shanghai Zhongzhou Special Alloy Materials (1 doesn't sit too well with us) you should be aware of.

While Shanghai Zhongzhou Special Alloy Materials isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.