Is There More Growth In Store For Chelyabinsk Metallurgical Plant PAO's (MCX:CHMK) Returns On Capital?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Chelyabinsk Metallurgical Plant PAO (MCX:CHMK) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Chelyabinsk Metallurgical Plant PAO is:

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).

Therefore, Chelyabinsk Metallurgical Plant PAO has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 7.6%.

View our latest analysis for Chelyabinsk Metallurgical Plant PAO

Historical performance is a great place to start when researching a stock so above you can see the gauge for Chelyabinsk Metallurgical Plant PAO's ROCE against it's prior returns. If you'd like to look at how Chelyabinsk Metallurgical Plant PAO has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Chelyabinsk Metallurgical Plant PAO Tell Us?

Chelyabinsk Metallurgical Plant PAO has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 2.3% which is a sight for sore eyes. Not only that, but the company is utilizing 270% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 21%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Chelyabinsk Metallurgical Plant PAO has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Chelyabinsk Metallurgical Plant PAO's ROCE

In summary, it's great to see that Chelyabinsk Metallurgical Plant PAO has managed to break into profitability and is continuing to reinvest in its business. Given the stock has declined 13% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we've found 2 warning signs for Chelyabinsk Metallurgical Plant PAO that we think you should be aware of.

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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