If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Ningxia Orient Tantalum Industry (SZSE:000962) so let's look a bit deeper.

What Is 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 Ningxia Orient Tantalum Industry, this is the formula:

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

0.027 = CN¥67m ÷ (CN¥2.8b - CN¥319m) (Based on the trailing twelve months to September 2023).

Thus, Ningxia Orient Tantalum Industry has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 6.2%.

View our latest analysis for Ningxia Orient Tantalum Industry

Above you can see how the current ROCE for Ningxia Orient Tantalum Industry compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Ningxia Orient Tantalum Industry.

So How Is Ningxia Orient Tantalum Industry's ROCE Trending?

We're delighted to see that Ningxia Orient Tantalum Industry is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.7% on its capital. Not only that, but the company is utilizing 107% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 11%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Ningxia Orient Tantalum Industry has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

Overall, Ningxia Orient Tantalum Industry gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with a respectable 55% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about Ningxia Orient Tantalum Industry, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

While Ningxia Orient Tantalum Industry 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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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.