Returns Are Gaining Momentum At Inner Mongolia Yitai CoalLtd (SHSE:900948)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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, Inner Mongolia Yitai CoalLtd (SHSE:900948) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Inner Mongolia Yitai CoalLtd is:

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

0.18 = CN¥14b ÷ (CN¥91b - CN¥14b) (Based on the trailing twelve months to September 2023).

Therefore, Inner Mongolia Yitai CoalLtd has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 12% generated by the Oil and Gas industry.

View our latest analysis for Inner Mongolia Yitai CoalLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Inner Mongolia Yitai CoalLtd's ROCE against it's prior returns. If you'd like to look at how Inner Mongolia Yitai CoalLtd has performed in the past in other metrics, you can view this free graph of Inner Mongolia Yitai CoalLtd's past earnings, revenue and cash flow.

The Trend Of ROCE

Inner Mongolia Yitai CoalLtd's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 69% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

In summary, we're delighted to see that Inner Mongolia Yitai CoalLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 2 warning signs for Inner Mongolia Yitai CoalLtd you'll probably want to know about.

While Inner Mongolia Yitai CoalLtd 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.