Investors Will Want LiJiang YuLong Tourism's (SZSE:002033) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, LiJiang YuLong Tourism (SZSE:002033) looks quite promising in regards to its trends of return on capital.

Understanding 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. The formula for this calculation on LiJiang YuLong Tourism is:

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

0.11 = CN¥285m ÷ (CN¥2.8b - CN¥228m) (Based on the trailing twelve months to June 2024).

Thus, LiJiang YuLong Tourism has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

Check out our latest analysis for LiJiang YuLong Tourism

Above you can see how the current ROCE for LiJiang YuLong Tourism compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for LiJiang YuLong Tourism .

How Are Returns Trending?

LiJiang YuLong Tourism's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 30% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On LiJiang YuLong Tourism's ROCE

As discussed above, LiJiang YuLong Tourism appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 71% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if LiJiang YuLong Tourism can keep these trends up, it could have a bright future ahead.

Like most companies, LiJiang YuLong Tourism does come with some risks, and we've found 1 warning sign that you should be aware of.

While LiJiang YuLong Tourism may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.