China Tianrui Group Cement (HKG:1252) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at China Tianrui Group Cement (HKG:1252) so let's look a bit deeper.

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. Analysts use this formula to calculate it for China Tianrui Group Cement:

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

0.15 = CN¥2.9b ÷ (CN¥32b - CN¥13b) (Based on the trailing twelve months to December 2020).

Therefore, China Tianrui Group Cement has an ROCE of 15%. That's a pretty standard return and it's in line with the industry average of 15%.

See our latest analysis for China Tianrui Group Cement

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating China Tianrui Group Cement's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For China Tianrui Group Cement Tell Us?

Investors would be pleased with what's happening at China Tianrui Group Cement. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 43% more capital is being employed now too. So we're very much inspired by what we're seeing at China Tianrui Group Cement thanks to its ability to profitably reinvest capital.

Another thing to note, China Tianrui Group Cement has a high ratio of current liabilities to total assets of 41%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

To sum it up, China Tianrui Group Cement has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 200% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching China Tianrui Group Cement, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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