Jiangsu Yunyi ElectricLtd (SZSE:300304) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Jiangsu Yunyi ElectricLtd's (SZSE:300304) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Jiangsu Yunyi ElectricLtd:

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

0.12 = CN¥380m ÷ (CN¥3.9b - CN¥813m) (Based on the trailing twelve months to June 2024).

Therefore, Jiangsu Yunyi ElectricLtd has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 7.2% it's much better.

See our latest analysis for Jiangsu Yunyi ElectricLtd

In the above chart we have measured Jiangsu Yunyi ElectricLtd'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 Jiangsu Yunyi ElectricLtd for free.

What Can We Tell From Jiangsu Yunyi ElectricLtd's ROCE Trend?

We like the trends that we're seeing from Jiangsu Yunyi ElectricLtd. The data shows that returns on capital have increased substantially over the last five years to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 52%. So we're very much inspired by what we're seeing at Jiangsu Yunyi ElectricLtd thanks to its ability to profitably reinvest capital.

What We Can Learn From Jiangsu Yunyi ElectricLtd's ROCE

To sum it up, Jiangsu Yunyi ElectricLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 84% 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. In light of that, we think it's worth looking further into this stock because if Jiangsu Yunyi ElectricLtd can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 300304 that compares the share price and estimated value.

While Jiangsu Yunyi ElectricLtd 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.