Returns On Capital At China Crystal New Material HoldingsLtd (KOSDAQ:900250) Paint An Interesting Picture

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. In light of that, when we looked at China Crystal New Material HoldingsLtd (KOSDAQ:900250) and its ROCE trend, we weren't exactly thrilled.

What is 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 Crystal New Material HoldingsLtd, this is the formula:

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

0.10 = ₩30b ÷ (₩329b - ₩33b) (Based on the trailing twelve months to September 2020).

Therefore, China Crystal New Material HoldingsLtd has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 7.9% it's much better.

View our latest analysis for China Crystal New Material HoldingsLtd

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 Crystal New Material HoldingsLtd 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 Crystal New Material HoldingsLtd's ROCE Trending?

In terms of China Crystal New Material HoldingsLtd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 16%, but since then they've fallen to 10%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From China Crystal New Material HoldingsLtd's ROCE

While returns have fallen for China Crystal New Material HoldingsLtd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 39% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we've found 2 warning signs for China Crystal New Material HoldingsLtd that we think you should be aware of.

While China Crystal New Material HoldingsLtd 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. 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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