Xinjiang Xinxin Mining Industry (HKG:3833) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Xinjiang Xinxin Mining Industry (HKG:3833) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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)

0.10 = CN¥555m ÷ (CN¥7.3b - CN¥2.0b) (Based on the trailing twelve months to June 2021).

Thus, Xinjiang Xinxin Mining Industry has an ROCE of 10%. In isolation, that's a pretty standard return but against the Metals and Mining industry average of 13%, it's not as good.

See our latest analysis for Xinjiang Xinxin Mining Industry

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Xinjiang Xinxin Mining Industry, check out these free graphs here.

What Does the ROCE Trend For Xinjiang Xinxin Mining Industry Tell Us?

Shareholders will be relieved that Xinjiang Xinxin Mining Industry has broken into profitability. The company now earns 10% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Xinjiang Xinxin Mining Industry has remained flat over the period. 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. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

As discussed above, Xinjiang Xinxin Mining Industry appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 60% to shareholders over the last five years, it's fair to say investors are beginning to recognize 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.

If you'd like to know about the risks facing Xinjiang Xinxin Mining Industry, we've discovered 2 warning signs that you should be aware of.

While Xinjiang Xinxin Mining Industry may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.