Jinchuan Group International Resources (HKG:2362) Is Experiencing Growth In Returns On Capital

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Jinchuan Group International Resources (HKG:2362) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Jinchuan Group International Resources:

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

0.18 = US$302m ÷ (US$2.1b - US$418m) (Based on the trailing twelve months to June 2022).

Therefore, Jinchuan Group International Resources has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 12% generated by the Metals and Mining industry.

View 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.

What The Trend Of ROCE Can Tell Us

Jinchuan Group International Resources is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 314% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To bring it all together, Jinchuan Group International Resources has done well to increase the returns it's generating from its capital employed. Given the stock has declined 42% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Jinchuan Group International Resources does have some risks though, and we've spotted 1 warning sign for Jinchuan Group International Resources that you might be interested in.

While Jinchuan Group International Resources isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.