Investors Will Want China Vanadium Titano-Magnetite Mining's (HKG:893) Growth In ROCE To Persist

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at China Vanadium Titano-Magnetite Mining (HKG:893) and its trend of ROCE, we really liked what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.0061 = CN¥6.3m ÷ (CN¥1.2b - CN¥134m) (Based on the trailing twelve months to December 2021).

So, China Vanadium Titano-Magnetite Mining has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 14%.

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 want to delve into the historical earnings, revenue and cash flow of China Vanadium Titano-Magnetite Mining, check out these free graphs here.

The Trend Of ROCE

We're delighted to see that China Vanadium Titano-Magnetite Mining is reaping rewards from its investments and has now broken into profitability. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 0.6% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 39%. China Vanadium Titano-Magnetite Mining could be selling under-performing assets since the ROCE is improving.

On a related note, the company's ratio of current liabilities to total assets has decreased to 11%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that China Vanadium Titano-Magnetite Mining has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

In the end, China Vanadium Titano-Magnetite Mining has proven it's capital allocation skills are good with those higher returns from less amount of capital. And since the stock has fallen 64% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching China Vanadium Titano-Magnetite Mining, you might be interested to know about the 2 warning signs that our analysis has discovered.

While China Vanadium Titano-Magnetite Mining 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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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.