DingZing Advanced Materials (TWSE:6585) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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 when we looked at DingZing Advanced Materials (TWSE:6585) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 DingZing Advanced Materials is:

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

0.12 = NT$538m ÷ (NT$5.3b - NT$757m) (Based on the trailing twelve months to December 2023).

So, DingZing Advanced Materials has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 4.9% it's much better.

See our latest analysis for DingZing Advanced Materials

In the above chart we have measured DingZing Advanced Materials' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for DingZing Advanced Materials .

What Can We Tell From DingZing Advanced Materials' ROCE Trend?

Investors would be pleased with what's happening at DingZing Advanced Materials. The data shows that returns on capital have increased substantially over the last five years to 12%. The amount of capital employed has increased too, by 72%. So we're very much inspired by what we're seeing at DingZing Advanced Materials thanks to its ability to profitably reinvest capital.

One more thing to note, DingZing Advanced Materials has decreased current liabilities to 14% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that DingZing Advanced Materials has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

To sum it up, DingZing Advanced Materials has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 375% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if DingZing Advanced Materials can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing DingZing Advanced Materials that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.