Anhui Yingjia Distillery (SHSE:603198) Is Investing Its Capital With Increasing Efficiency

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Anhui Yingjia Distillery's (SHSE:603198) 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 Anhui Yingjia Distillery is:

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

0.34 = CN¥3.2b ÷ (CN¥12b - CN¥2.8b) (Based on the trailing twelve months to March 2024).

Thus, Anhui Yingjia Distillery has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Beverage industry average of 16%.

Check out our latest analysis for Anhui Yingjia Distillery

In the above chart we have measured Anhui Yingjia Distillery's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Anhui Yingjia Distillery .

The Trend Of ROCE

We like the trends that we're seeing from Anhui Yingjia Distillery. The data shows that returns on capital have increased substantially over the last five years to 34%. The amount of capital employed has increased too, by 98%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Anhui Yingjia Distillery's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Anhui Yingjia Distillery has. And a remarkable 206% total return over the last five years tells us that investors are expecting more good things to come in the future. 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 1 warning sign for Anhui Yingjia Distillery you'll probably want to know about.

Anhui Yingjia Distillery is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.