Shareholders Would Enjoy A Repeat Of Anhui Conch Cement's (HKG:914) Recent Growth In Returns

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Anhui Conch Cement's (HKG:914) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Anhui Conch Cement:

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

0.24 = CN¥43b ÷ (CN¥203b - CN¥21b) (Based on the trailing twelve months to March 2021).

Thus, Anhui Conch Cement has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Basic Materials industry average of 15%.

See our latest analysis for Anhui Conch Cement

Above you can see how the current ROCE for Anhui Conch Cement compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

Anhui Conch Cement is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. The amount of capital employed has increased too, by 106%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Anhui Conch Cement's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Anhui Conch Cement has. Since the stock has returned a staggering 192% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Anhui Conch Cement does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

Anhui Conch Cement is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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