What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Jinhui Mining Incorporation (SHSE:603132) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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 Jinhui Mining Incorporation is:

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

0.14 = CN¥519m ÷ (CN¥5.6b - CN¥1.8b) (Based on the trailing twelve months to September 2023).

Therefore, Jinhui Mining Incorporation has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.2% generated by the Metals and Mining industry.

Check out our latest analysis for Jinhui Mining Incorporation

In the above chart we have measured Jinhui Mining Incorporation'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 Jinhui Mining Incorporation here for free.

So How Is Jinhui Mining Incorporation's ROCE Trending?

While the returns on capital are good, they haven't moved much. Over the past four years, ROCE has remained relatively flat at around 14% and the business has deployed 74% more capital into its operations. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Jinhui Mining Incorporation has done well to reduce current liabilities to 32% of total assets over the last four years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

In the end, Jinhui Mining Incorporation has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 14% to shareholders over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing to note, we've identified 1 warning sign with Jinhui Mining Incorporation and understanding this should be part of your investment process.

While Jinhui Mining Incorporation 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.