The Return Trends At Inner Mongolia Yitai CoalLtd (SHSE:900948) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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.

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. Analysts use this formula to calculate it for Inner Mongolia Yitai CoalLtd:

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

0.14 = CN¥9.7b ÷ (CN¥85b - CN¥15b) (Based on the trailing twelve months to September 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 10.0% 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'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.

What Can We Tell From Inner Mongolia Yitai CoalLtd's ROCE Trend?

Inner Mongolia Yitai CoalLtd's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 70% 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Inner Mongolia Yitai CoalLtd's ROCE

To bring it all together, Inner Mongolia Yitai CoalLtd has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Inner Mongolia Yitai CoalLtd, we've discovered 1 warning sign that you should be aware of.

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.