Shougang Fushan Resources Group (HKG:639) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can 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. So on that note, Shougang Fushan Resources Group (HKG:639) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Shougang Fushan Resources Group is:

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

0.19 = HK$3.9b ÷ (HK$25b - HK$3.9b) (Based on the trailing twelve months to December 2021).

Thus, Shougang Fushan Resources Group has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 14% it's much better.

See our latest analysis for Shougang Fushan Resources Group

In the above chart we have measured Shougang Fushan Resources Group'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 Shougang Fushan Resources Group here for free.

The Trend Of ROCE

Shougang Fushan Resources Group is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 19%. The amount of capital employed has increased too, by 21%. 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.

The Bottom Line

To sum it up, Shougang Fushan Resources Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 169% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Shougang Fushan Resources Group can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Shougang Fushan Resources Group we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

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.