Chelyabinsk Metallurgical Plant PAO's (MCX:CHMK) Returns On Capital Are Heading Higher

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Chelyabinsk Metallurgical Plant PAO (MCX:CHMK) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Chelyabinsk Metallurgical Plant PAO, this is the formula:

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

0.023 = ₽5.4b ÷ (₽303b - ₽65b) (Based on the trailing twelve months to December 2020).

Thus, Chelyabinsk Metallurgical Plant PAO has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 8.8%.

View our latest analysis for Chelyabinsk Metallurgical Plant PAO

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 Chelyabinsk Metallurgical Plant PAO, check out these free graphs here.

How Are Returns Trending?

Chelyabinsk Metallurgical Plant PAO has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 2.3% on its capital. In addition to that, Chelyabinsk Metallurgical Plant PAO is employing 270% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Chelyabinsk Metallurgical Plant PAO has decreased current liabilities to 21% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

To the delight of most shareholders, Chelyabinsk Metallurgical Plant PAO has now broken into profitability. Considering the stock has delivered 30% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a separate note, we've found 2 warning signs for Chelyabinsk Metallurgical Plant PAO you'll probably want to know about.

While Chelyabinsk Metallurgical Plant PAO 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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