Returns On Capital Are Showing Encouraging Signs At China Vanadium Titano-Magnetite Mining (HKG:893)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at China Vanadium Titano-Magnetite Mining (HKG:893) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.01 = CN¥11m ÷ (CN¥1.3b - CN¥226m) (Based on the trailing twelve months to June 2023).

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 8.4%.

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'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 past earnings, revenue and cash flow.

So How Is China Vanadium Titano-Magnetite Mining's ROCE Trending?

We're delighted to see that China Vanadium Titano-Magnetite Mining is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 1.0% on its capital. While returns have increased, the amount of capital employed by China Vanadium Titano-Magnetite Mining has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 18%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

To sum it up, China Vanadium Titano-Magnetite Mining is collecting higher returns from the same amount of capital, and that's impressive. Although the company may be facing some issues elsewhere since the stock has plunged 84% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

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 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.