We Like These Underlying Return On Capital Trends At Shougang Fushan Resources Group (HKG:639)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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, Shougang Fushan Resources Group (HKG:639) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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 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).

So, Shougang Fushan Resources Group has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 14% generated by the Metals and Mining industry.

Check out 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 to see what analysts are forecasting going forward, you should check out our free report for Shougang Fushan Resources Group.

The Trend Of ROCE

Investors would be pleased with what's happening at Shougang Fushan Resources Group. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. 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 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

In summary, it's great to see that Shougang Fushan Resources Group 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. And a remarkable 248% 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.

On a final note, we found 3 warning signs for Shougang Fushan Resources Group (1 is concerning) you should be aware of.

While Shougang Fushan Resources Group 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.