We Like These Underlying Return On Capital Trends At Jinchuan Group International Resources (HKG:2362)

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 12% it's much better.

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 want to delve into the historical earnings, revenue and cash flow of Jinchuan Group International Resources, check out these free graphs here.

How Are Returns Trending?

Jinchuan Group International Resources has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 313% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

To sum it up, Jinchuan Group International Resources is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 49% 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.