There Are Reasons To Feel Uneasy About Jinchuan Group International Resources' (HKG:2362) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after investigating Jinchuan Group International Resources (HKG:2362), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Jinchuan Group International Resources, this is the formula:

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

0.014 = US$25m ÷ (US$2.0b - US$266m) (Based on the trailing twelve months to December 2022).

Thus, Jinchuan Group International Resources has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 8.3%.

View our latest analysis for Jinchuan Group International Resources

In the above chart we have measured Jinchuan Group International Resources' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Jinchuan Group International Resources Tell Us?

In terms of Jinchuan Group International Resources' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 5.7% over the last five years. However it looks like Jinchuan Group International Resources might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Jinchuan Group International Resources' ROCE

To conclude, we've found that Jinchuan Group International Resources is reinvesting in the business, but returns have been falling. Since the stock has declined 59% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a separate note, we've found 2 warning signs for Jinchuan Group International Resources you'll probably want to know about.

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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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.