Returns At China Vanadium Titano-Magnetite Mining (HKG:893) Are On The Way Up

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. 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?

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 Vanadium Titano-Magnetite Mining, this is the formula:

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

0.0001 = CN¥95k ÷ (CN¥1.2b - CN¥216m) (Based on the trailing twelve months to June 2022).

Therefore, China Vanadium Titano-Magnetite Mining has an ROCE of 0.01%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 9.1%.

View our latest analysis for China Vanadium Titano-Magnetite Mining

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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.

What The Trend Of ROCE Can Tell Us

It's great to see that China Vanadium Titano-Magnetite Mining has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 41% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 19%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

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

In a nutshell, we're pleased to see that China Vanadium Titano-Magnetite Mining has been able to generate higher returns from less capital. And since the stock has fallen 63% 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.

On a final note, we've found 3 warning signs for China Vanadium Titano-Magnetite Mining that we think you should be aware of.

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.