Aluminum Corporation of China (HKG:2600) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Speaking of which, we noticed some great changes in Aluminum Corporation of China's (HKG:2600) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Aluminum Corporation of China:

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

0.15 = CN¥24b ÷ (CN¥214b - CN¥53b) (Based on the trailing twelve months to September 2024).

Thus, Aluminum Corporation of China has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Metals and Mining industry.

See our latest analysis for Aluminum Corporation of China

In the above chart we have measured Aluminum Corporation of China's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Aluminum Corporation of China for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Aluminum Corporation of China. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The amount of capital employed has increased too, by 21%. So we're very much inspired by what we're seeing at Aluminum Corporation of China thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 25%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Aluminum Corporation of China has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

All in all, it's terrific to see that Aluminum Corporation of China is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 223% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 2600 that compares the share price and estimated value.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.