We Like These Underlying Return On Capital Trends At Yizumi Holdings (SZSE:300415)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in Yizumi Holdings' (SZSE:300415) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Yizumi Holdings is:

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

0.16 = CN¥659m ÷ (CN¥6.6b - CN¥2.5b) (Based on the trailing twelve months to September 2024).

So, Yizumi Holdings has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.3% it's much better.

Check out our latest analysis for Yizumi Holdings

In the above chart we have measured Yizumi Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Yizumi Holdings .

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Yizumi Holdings. Over the last five years, returns on capital employed have risen substantially to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 145% more capital is being employed now too. So we're very much inspired by what we're seeing at Yizumi Holdings thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Yizumi Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 200% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Yizumi Holdings that you might find interesting.

While Yizumi Holdings 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.