Returns Are Gaining Momentum At CNNC International (HKG:2302)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. With that in mind, we've noticed some promising trends at CNNC International (HKG:2302) so let's look a bit deeper.

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 CNNC International:

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

0.099 = HK$55m ÷ (HK$639m - HK$78m) (Based on the trailing twelve months to June 2023).

Therefore, CNNC International has an ROCE of 9.9%. On its own that's a low return, but compared to the average of 5.9% generated by the Trade Distributors industry, it's much better.

Check out our latest analysis for CNNC International

Historical performance is a great place to start when researching a stock so above you can see the gauge for CNNC International's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of CNNC International, check out these free graphs here.

So How Is CNNC International's ROCE Trending?

Shareholders will be relieved that CNNC International has broken into profitability. The company now earns 9.9% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

The Bottom Line On CNNC International's ROCE

To sum it up, CNNC International is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 67% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing CNNC International we've found 3 warning signs (1 is significant!) that you should be aware of before investing here.

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.

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.