China Daye Non-Ferrous Metals Mining's (HKG:661) Returns Have Hit A Wall

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating China Daye Non-Ferrous Metals Mining (HKG:661), we don't think it's current trends fit the mold of a multi-bagger.

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 China Daye Non-Ferrous Metals Mining is:

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

0.046 = CN¥576m ÷ (CN¥24b - CN¥12b) (Based on the trailing twelve months to June 2023).

Therefore, China Daye Non-Ferrous Metals Mining has an ROCE of 4.6%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 8.4%.

See our latest analysis for China Daye Non-Ferrous Metals Mining

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'd like to look at how China Daye Non-Ferrous Metals Mining has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From China Daye Non-Ferrous Metals Mining's ROCE Trend?

In terms of China Daye Non-Ferrous Metals Mining's historical ROCE trend, it doesn't exactly demand attention. The company has employed 34% more capital in the last five years, and the returns on that capital have remained stable at 4.6%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Another thing to note, China Daye Non-Ferrous Metals Mining has a high ratio of current liabilities to total assets of 49%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

In conclusion, China Daye Non-Ferrous Metals Mining has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 3.5% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to know some of the risks facing China Daye Non-Ferrous Metals Mining we've found 3 warning signs (2 are a bit 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.