Returns On Capital At China Tianrui Group Cement (HKG:1252) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Although, when we looked at China Tianrui Group Cement (HKG:1252), it didn't seem to tick all of these boxes.

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. The formula for this calculation on China Tianrui Group Cement is:

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

0.077 = CN¥1.5b ÷ (CN¥33b - CN¥13b) (Based on the trailing twelve months to June 2022).

So, China Tianrui Group Cement has an ROCE of 7.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.0%.

See our latest analysis for China Tianrui Group Cement

In the above chart we have measured China Tianrui Group Cement's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering China Tianrui Group Cement here for free.

So How Is China Tianrui Group Cement's ROCE Trending?

There are better returns on capital out there than what we're seeing at China Tianrui Group Cement. Over the past five years, ROCE has remained relatively flat at around 7.7% and the business has deployed 46% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From China Tianrui Group Cement's ROCE

As we've seen above, China Tianrui Group Cement's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 53% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

China Tianrui Group Cement does have some risks though, and we've spotted 2 warning signs for China Tianrui Group Cement that you might be interested in.

While China Tianrui Group Cement may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.