There's Been No Shortage Of Growth Recently For Xinjiang Xinxin Mining Industry's (HKG:3833) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Xinjiang Xinxin Mining Industry (HKG:3833) so let's look a bit deeper.

Understanding 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. Analysts use this formula to calculate it for Xinjiang Xinxin Mining Industry:

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

0.15 = CN¥966m ÷ (CN¥8.1b - CN¥1.6b) (Based on the trailing twelve months to June 2022).

Thus, Xinjiang Xinxin Mining Industry has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 13%.

Our analysis indicates that 3833 is potentially undervalued!

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.

The Trend Of ROCE

We're delighted to see that Xinjiang Xinxin Mining Industry is reaping rewards from its investments and has now broken into profitability. The company now earns 15% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

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

To bring it all together, Xinjiang Xinxin Mining Industry has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 11% 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.

While Xinjiang Xinxin Mining Industry looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 3833 is currently trading for a fair price.

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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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.