Returns On Capital Are Showing Encouraging Signs At Yindu Kitchen Equipment (SHSE:603277)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So when we looked at Yindu Kitchen Equipment (SHSE:603277) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Yindu Kitchen Equipment:

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

0.19 = CN¥619m ÷ (CN¥4.3b - CN¥1.1b) (Based on the trailing twelve months to September 2024).

So, Yindu Kitchen Equipment has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 5.2% generated by the Machinery industry.

Check out our latest analysis for Yindu Kitchen Equipment

Above you can see how the current ROCE for Yindu Kitchen Equipment compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Yindu Kitchen Equipment for free.

So How Is Yindu Kitchen Equipment's ROCE Trending?

Investors would be pleased with what's happening at Yindu Kitchen Equipment. Over the last five years, returns on capital employed have risen substantially to 19%. 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 65%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Yindu Kitchen Equipment is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Yindu Kitchen Equipment does have some risks though, and we've spotted 1 warning sign for Yindu Kitchen Equipment that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.