The Returns At China XLX Fertiliser (HKG:1866) Aren't Growing

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at China XLX Fertiliser (HKG:1866), it didn't seem to tick all of these boxes.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on China XLX Fertiliser is:

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

0.062 = CN¥1.6b ÷ (CN¥36b - CN¥11b) (Based on the trailing twelve months to June 2025).

So, China XLX Fertiliser has an ROCE of 6.2%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.5%.

See our latest analysis for China XLX Fertiliser

Above you can see how the current ROCE for China XLX Fertiliser 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 China XLX Fertiliser .

So How Is China XLX Fertiliser's ROCE Trending?

In terms of China XLX Fertiliser's historical ROCE trend, it doesn't exactly demand attention. The company has employed 121% more capital in the last five years, and the returns on that capital have remained stable at 6.2%. 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.

On a side note, China XLX Fertiliser has done well to reduce current liabilities to 31% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On China XLX Fertiliser's ROCE

Long story short, while China XLX Fertiliser has been reinvesting its capital, the returns that it's generating haven't increased. Yet to long term shareholders the stock has gifted them an incredible 326% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

China XLX Fertiliser does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is potentially serious...

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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.