If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Zhongjin GoldLtd (SHSE:600489) 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. To calculate this metric for Zhongjin GoldLtd, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = CN¥3.8b ÷ (CN¥54b - CN¥18b) (Based on the trailing twelve months to September 2023).
Therefore, Zhongjin GoldLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.2% generated by the Metals and Mining industry.
See our latest analysis for Zhongjin GoldLtd
SHSE:600489 Return on Capital Employed November 29th 2023
In the above chart we have measured Zhongjin GoldLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Zhongjin GoldLtd here for free.
What Can We Tell From Zhongjin GoldLtd's ROCE Trend?
Zhongjin GoldLtd is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 11%. The amount of capital employed has increased too, by 58%. So we're very much inspired by what we're seeing at Zhongjin GoldLtd thanks to its ability to profitably reinvest capital.
In Conclusion...
To sum it up, Zhongjin GoldLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 41% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a separate note, we've found 1 warning sign for Zhongjin GoldLtd you'll probably want to know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
