Investors Shouldn't Overlook Nan Nan Resources Enterprise's (HKG:1229) Impressive Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Nan Nan Resources Enterprise (HKG:1229) looks great, so lets see what the trend can tell us.

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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. Analysts use this formula to calculate it for Nan Nan Resources Enterprise:

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

0.29 = HK$93m ÷ (HK$643m - HK$325m) (Based on the trailing twelve months to March 2025).

Thus, Nan Nan Resources Enterprise has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 5.7% earned by companies in a similar industry.

Check out our latest analysis for Nan Nan Resources Enterprise

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nan Nan Resources Enterprise's ROCE against it's prior returns. If you're interested in investigating Nan Nan Resources Enterprise's past further, check out this free graph covering Nan Nan Resources Enterprise's past earnings, revenue and cash flow.

How Are Returns Trending?

Nan Nan Resources Enterprise has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 29% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 51% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

The Bottom Line

To sum it up, Nan Nan Resources Enterprise is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 2 warning signs with Nan Nan Resources Enterprise and understanding these should be part of your investment process.

Nan Nan Resources Enterprise 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.