Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Sinomine Resource Group (SZSE:002738) we really liked what we saw.

Understanding 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 Sinomine Resource Group, this is the formula:

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

0.29 = CN¥3.9b ÷ (CN¥16b - CN¥2.7b) (Based on the trailing twelve months to September 2023).

So, Sinomine Resource Group has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 6.2%.

Check out our latest analysis for Sinomine Resource Group

Above you can see how the current ROCE for Sinomine Resource Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Sinomine Resource Group here for free.

What Can We Tell From Sinomine Resource Group's ROCE Trend?

Sinomine Resource Group is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 29%. Basically the business is earning more per dollar of capital invested and in addition to that, 502% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 17%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On Sinomine Resource Group's ROCE

To sum it up, Sinomine Resource Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 358% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with Sinomine Resource Group (at least 1 which is potentially serious) , and understanding them would certainly be useful.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.