Can Jinchuan Group International Resources (HKG:2362) Continue To Grow Its Returns On Capital?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Jinchuan Group International Resources (HKG:2362) and its trend of ROCE, we really liked what we saw.

Understanding 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 Jinchuan Group International Resources is:

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

0.008 = US$12m ÷ (US$1.7b - US$272m) (Based on the trailing twelve months to June 2020).

Therefore, Jinchuan Group International Resources has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 7.5%.

See our latest analysis for Jinchuan Group International Resources

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jinchuan Group International Resources' ROCE against it's prior returns. If you'd like to look at how Jinchuan Group International Resources has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Jinchuan Group International Resources' ROCE Trending?

We're delighted to see that Jinchuan Group International Resources is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 0.8%, which is always encouraging. 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. 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.

Our Take On Jinchuan Group International Resources' ROCE

To bring it all together, Jinchuan Group International Resources has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Jinchuan Group International Resources, we've discovered 1 warning sign that you should be aware of.

While Jinchuan Group International Resources 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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