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

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Inner Mongolia Yitai CoalLtd's (SHSE:900948) returns on capital, so let's have a look.

Understanding 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)

0.14 = CN¥10b ÷ (CN¥89b - CN¥14b) (Based on the trailing twelve months to March 2024).

So, Inner Mongolia Yitai CoalLtd has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 11% it's much better.

View our latest analysis for Inner Mongolia Yitai CoalLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Inner Mongolia Yitai CoalLtd's past further, check out this free graph covering Inner Mongolia Yitai CoalLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Inner Mongolia Yitai CoalLtd Tell Us?

Inner Mongolia Yitai CoalLtd is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 41% 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.

What We Can Learn From Inner Mongolia Yitai CoalLtd's ROCE

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. In light of that, we think it's worth looking further into this stock because if Inner Mongolia Yitai CoalLtd can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for Inner Mongolia Yitai CoalLtd (1 doesn't sit too well with us) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.

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