What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Nanjing Hanrui CobaltLtd's (SZSE:300618) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Nanjing Hanrui CobaltLtd:

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

0.062 = CN¥356m ÷ (CN¥8.8b - CN¥3.1b) (Based on the trailing twelve months to September 2024).

Thus, Nanjing Hanrui CobaltLtd has an ROCE of 6.2%. On its own, that's a low figure but it's around the 6.8% average generated by the Metals and Mining industry.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nanjing Hanrui CobaltLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Nanjing Hanrui CobaltLtd.

So How Is Nanjing Hanrui CobaltLtd's ROCE Trending?

Nanjing Hanrui CobaltLtd has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 6.2% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Nanjing Hanrui CobaltLtd is utilizing 147% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Nanjing Hanrui CobaltLtd's ROCE

To the delight of most shareholders, Nanjing Hanrui CobaltLtd has now broken into profitability. Given the stock has declined 63% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Nanjing Hanrui CobaltLtd does have some risks though, and we've spotted 1 warning sign for Nanjing Hanrui CobaltLtd that you might be interested in.

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.