China Daye Non-Ferrous Metals Mining (HKG:661) Might Be Having Difficulty Using Its Capital Effectively

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think China Daye Non-Ferrous Metals Mining (HKG:661) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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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 China Daye Non-Ferrous Metals Mining, this is the formula:

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

0.021 = CN¥313m ÷ (CN¥29b - CN¥14b) (Based on the trailing twelve months to June 2025).

Thus, China Daye Non-Ferrous Metals Mining has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 13%.

View our latest analysis for China Daye Non-Ferrous Metals Mining

Historical performance is a great place to start when researching a stock so above you can see the gauge for China Daye Non-Ferrous Metals Mining'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 China Daye Non-Ferrous Metals Mining.

How Are Returns Trending?

When we looked at the ROCE trend at China Daye Non-Ferrous Metals Mining, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.1% from 4.7% five years ago. However it looks like China Daye Non-Ferrous Metals Mining might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, China Daye Non-Ferrous Metals Mining's current liabilities are still rather high at 48% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On China Daye Non-Ferrous Metals Mining's ROCE

Bringing it all together, while we're somewhat encouraged by China Daye Non-Ferrous Metals Mining's reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 23% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know about the risks facing China Daye Non-Ferrous Metals Mining, we've discovered 2 warning signs that you should be aware of.

While China Daye Non-Ferrous Metals Mining 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.