Returns At China Daye Non-Ferrous Metals Mining (HKG:661) Appear To Be Weighed Down

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at China Daye Non-Ferrous Metals Mining (HKG:661) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.056 = CN¥751m ÷ (CN¥26b - CN¥13b) (Based on the trailing twelve months to December 2023).

So, China Daye Non-Ferrous Metals Mining has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 11%.

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

Historical performance is a great place to start when researching a stock so above you can see the gauge for China Daye Non-Ferrous Metals Mining's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of China Daye Non-Ferrous Metals Mining.

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

The returns on capital haven't changed much for China Daye Non-Ferrous Metals Mining in recent years. Over the past five years, ROCE has remained relatively flat at around 5.6% and the business has deployed 51% more capital into its operations. 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.

On a separate but related note, it's important to know that China Daye Non-Ferrous Metals Mining has a current liabilities to total assets ratio of 49%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On China Daye Non-Ferrous Metals Mining's ROCE

In summary, China Daye Non-Ferrous Metals Mining has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 17% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you're still interested in China Daye Non-Ferrous Metals Mining it's worth checking out our FREE intrinsic value approximation for 661 to see if it's trading at an attractive price in other respects.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com