Can Zijin Mining Group (HKG:2899) Continue To Grow Its Returns On Capital?

February 01, 2021
  •  Updated
August 16, 2022
SEHK:2899
Source: Shutterstock

There are a few key trends to look for if we want to identify the next 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. 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, Zijin Mining Group (HKG:2899) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Zijin Mining Group is:

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

0.098 = CN¥12b ÷ (CN¥171b - CN¥48b) (Based on the trailing twelve months to September 2020).

So, Zijin Mining Group has an ROCE of 9.8%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 7.5%.

See our latest analysis for Zijin Mining Group

roce
SEHK:2899 Return on Capital Employed February 2nd 2021

Above you can see how the current ROCE for Zijin Mining Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Zijin Mining Group.

So How Is Zijin Mining Group's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.8%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 137%. So we're very much inspired by what we're seeing at Zijin Mining Group thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Zijin Mining Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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About SEHK:2899

Zijin Mining Group

Zijin Mining Group Company Limited, together with its subsidiaries, engages in prospecting, exploration, and mining mineral resources in Mainland China.

Outstanding track record with adequate balance sheet.