Maanshan Iron & Steel (HKG:323) capital returns rise
If you’re looking for a multi-bagger, there are a few things to watch out for. Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. So on that note, Maanshan Iron and Steel (HKG:323) looks quite promising in terms of its capital return trends.
Return on capital employed (ROCE): what is it?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Maanshan Iron & Steel is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.14 = CN¥6.7b ÷ (CN¥91b – CN¥45b) (Based on the last twelve months to March 2022).
Therefore, Maanshan Iron & Steel has a ROCE of 14%. This is a fairly standard return and is in line with the industry average of 14%.
Check out our latest review for Maanshan Iron & Steel
In the chart above, we measured Maanshan Iron & Steel’s past ROCE against its past performance, but the future is arguably more important. If you wish, you can view analyst forecasts covering Maanshan Iron & Steel here for free.
What does the ROCE trend tell us for Maanshan Iron & Steel?
We love the trends we see at Maanshan Iron & Steel. Figures show that over the past five years, returns generated on capital employed have increased significantly to 14%. The amount of capital employed also increased by 27%. Increasing returns on an increasing amount of capital are common among multi-baggers and that’s why we’re impressed.
Another thing to note, Maanshan Iron & Steel has a high current liabilities to total assets ratio of 49%. This may entail certain risks, since the company is essentially dependent on its suppliers or other types of short-term creditors. Ideally, we would like this to decrease, as this would mean fewer risky bonds.
What we can learn from Maanshan Iron & Steel’s ROCE
In summary, it is good to see that Maanshan Iron & Steel can generate returns by constantly reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought after multi-baggers. Given that the stock has returned 15% to its shareholders over the past five years, it may be fair to assume that investors are not yet fully aware of the promising trends. Given this, we would take a closer look at this stock in case it has more traits that can make it multiply in the long run.
One more thing to note, we have identified 2 warning signs with Maanshan Iron & Steel and understanding them should be part of your investment process.
Although Maanshan Iron & Steel does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. look at this free list here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.