Be Wary Of China Vanadium Titano-Magnetite Mining (HKG:893) And Its Returns On Capital

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Basically the company is earning less on its investments and it is also reducing its total assets. On that note, looking into China Vanadium Titano-Magnetite Mining (HKG:893), we weren't too upbeat about how things were going.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on China Vanadium Titano-Magnetite Mining is:

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

0.0042 = CN¥4.4m ÷ (CN¥1.3b - CN¥242m) (Based on the trailing twelve months to December 2023).

Thus, China Vanadium Titano-Magnetite Mining has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 11%.

Check out our latest analysis for China Vanadium Titano-Magnetite Mining

Historical performance is a great place to start when researching a stock so above you can see the gauge for China Vanadium Titano-Magnetite Mining's ROCE against it's prior returns. If you'd like to look at how China Vanadium Titano-Magnetite Mining has performed in the past in other metrics, you can view this free graph of China Vanadium Titano-Magnetite Mining's past earnings, revenue and cash flow.

What Can We Tell From China Vanadium Titano-Magnetite Mining's ROCE Trend?

We are a bit worried about the trend of returns on capital at China Vanadium Titano-Magnetite Mining. Unfortunately the returns on capital have diminished from the 1.3% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on China Vanadium Titano-Magnetite Mining becoming one if things continue as they have.

On a side note, China Vanadium Titano-Magnetite Mining has done well to pay down its current liabilities to 18% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line On China Vanadium Titano-Magnetite Mining's ROCE

In summary, it's unfortunate that China Vanadium Titano-Magnetite Mining is generating lower returns from the same amount of capital. Unsurprisingly then, the stock has dived 78% over the last five years, so investors are recognizing these changes and don't like the company's prospects. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

China Vanadium Titano-Magnetite Mining does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

While China Vanadium Titano-Magnetite Mining isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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