We Like China Shanshui Cement Group's (HKG:691) Returns And Here's How They're Trending

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in China Shanshui Cement Group's (HKG:691) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for China Shanshui Cement Group, this is the formula:

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

0.33 = CN¥5.4b ÷ (CN¥28b - CN¥11b) (Based on the trailing twelve months to June 2020).

Therefore, China Shanshui Cement Group has an ROCE of 33%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

Check out our latest analysis for China Shanshui Cement Group

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

The Trend Of ROCE

China Shanshui Cement Group has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 883% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On China Shanshui Cement Group's ROCE

In summary, we're delighted to see that China Shanshui Cement Group has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 23% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we've found 1 warning sign for China Shanshui Cement Group that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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