Return Trends At Ximei Resources Holding (HKG:9936) Aren't Appealing

What trends should we look for it we want to identify stocks that can 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Ximei Resources Holding's (HKG:9936) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on Ximei Resources Holding is:

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

0.18 = CN¥118m ÷ (CN¥1.1b - CN¥422m) (Based on the trailing twelve months to December 2021).

Therefore, Ximei Resources Holding has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 14% generated by the Metals and Mining industry.

Check out our latest analysis for Ximei Resources Holding

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're interested in investigating Ximei Resources Holding's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Ximei Resources Holding's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 380% more capital in the last five years, and the returns on that capital have remained stable at 18%. 18% is a pretty standard return, and it provides some comfort knowing that Ximei Resources Holding has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

To sum it up, Ximei Resources Holding has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last year the stock has declined 31%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Like most companies, Ximei Resources Holding does come with some risks, and we've found 1 warning sign that you should be aware of.

While Ximei Resources Holding 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.