Returns Are Gaining Momentum At China Vanadium Titano-Magnetite Mining (HKG:893)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in China Vanadium Titano-Magnetite Mining's (HKG:893) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for China Vanadium Titano-Magnetite Mining:

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

0.0095 = CN¥9.0m ÷ (CN¥1.2b - CN¥285m) (Based on the trailing twelve months to December 2020).

Thus, China Vanadium Titano-Magnetite Mining has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 8.1%.

View 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

Like most people, we're pleased that China Vanadium Titano-Magnetite Mining is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 1.0% 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 62%. This could potentially mean that the company is selling some of its assets.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 23%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. 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.

Our Take On China Vanadium Titano-Magnetite Mining's ROCE

In summary, it's great to see that China Vanadium Titano-Magnetite Mining has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has fallen 39% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing to note, we've identified 2 warning signs with China Vanadium Titano-Magnetite Mining and understanding them should be part of your investment process.

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. 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.
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