Returns On Capital Are Showing Encouraging Signs At Xinjiang Xinxin Mining Industry (HKG:3833)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, we've noticed some promising trends at Xinjiang Xinxin Mining Industry (HKG:3833) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Xinjiang Xinxin Mining Industry is:

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

0.068 = CN¥450m ÷ (CN¥7.9b - CN¥1.3b) (Based on the trailing twelve months to June 2023).

Therefore, Xinjiang Xinxin Mining Industry has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 8.7%.

View our latest analysis for Xinjiang Xinxin Mining Industry

Historical performance is a great place to start when researching a stock so above you can see the gauge for Xinjiang Xinxin Mining Industry's ROCE against it's prior returns. If you're interested in investigating Xinjiang Xinxin Mining Industry's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Xinjiang Xinxin Mining Industry's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 6.8%. Basically the business is earning more per dollar of capital invested and in addition to that, 28% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, Xinjiang Xinxin Mining Industry has decreased current liabilities to 16% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Xinjiang Xinxin Mining Industry's ROCE

In summary, it's great to see that Xinjiang Xinxin Mining Industry can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Considering the stock has delivered 12% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 2 warning signs we've spotted with Xinjiang Xinxin Mining Industry (including 1 which is potentially serious) .

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.