Will the Promising Trends At Asia Cement (China) Holdings (HKG:743) Continue?

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Asia Cement (China) Holdings (HKG:743) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Asia Cement (China) Holdings, this is the formula:

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

0.19 = CN¥3.5b ÷ (CN¥24b - CN¥5.3b) (Based on the trailing twelve months to September 2020).

Thus, Asia Cement (China) Holdings has an ROCE of 19%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Basic Materials industry average of 16%.

Check out our latest analysis for Asia Cement (China) Holdings

In the above chart we have measured Asia Cement (China) Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Asia Cement (China) Holdings is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially 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 26%. So we're very much inspired by what we're seeing at Asia Cement (China) Holdings thanks to its ability to profitably reinvest capital.

Our Take On Asia Cement (China) Holdings' ROCE

All in all, it's terrific to see that Asia Cement (China) Holdings is reaping the rewards from prior investments and is growing its capital base. And a remarkable 457% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Asia Cement (China) Holdings, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Asia Cement (China) Holdings 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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