The Return Trends At Yindu Kitchen Equipment (SHSE:603277) Look Promising

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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. To calculate this metric for Yindu Kitchen Equipment, this is the formula:

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

0.18 = CN¥579m ÷ (CN¥4.1b - CN¥853m) (Based on the trailing twelve months to March 2024).

Therefore, Yindu Kitchen Equipment has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 6.3% it's much better.

Check out our latest analysis for Yindu Kitchen Equipment

In the above chart we have measured Yindu Kitchen Equipment's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Yindu Kitchen Equipment .

What Can We Tell From Yindu Kitchen Equipment's ROCE Trend?

We like the trends that we're seeing from Yindu Kitchen Equipment. The data shows that returns on capital have increased substantially over the last five years to 18%. The amount of capital employed has increased too, by 74%. So we're very much inspired by what we're seeing at Yindu Kitchen Equipment thanks to its ability to profitably reinvest capital.

What We Can Learn From Yindu Kitchen Equipment's ROCE

In summary, it's great to see that Yindu Kitchen Equipment can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Yindu Kitchen Equipment can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Yindu Kitchen Equipment, we've discovered 1 warning sign that you should be aware of.

While Yindu Kitchen Equipment isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.