Investors Shouldn't Overlook The Favourable Returns On Capital At Wuliangye YibinLtd (SZSE:000858)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, the ROCE of Wuliangye YibinLtd (SZSE:000858) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Wuliangye YibinLtd:

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

0.28 = CN¥41b ÷ (CN¥181b - CN¥32b) (Based on the trailing twelve months to March 2024).

Therefore, Wuliangye YibinLtd has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

See our latest analysis for Wuliangye YibinLtd

Above you can see how the current ROCE for Wuliangye YibinLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Wuliangye YibinLtd for free.

The Trend Of ROCE

We'd be pretty happy with returns on capital like Wuliangye YibinLtd. The company has consistently earned 28% for the last five years, and the capital employed within the business has risen 107% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Wuliangye YibinLtd can keep this up, we'd be very optimistic about its future.

Our Take On Wuliangye YibinLtd's ROCE

In summary, we're delighted to see that Wuliangye YibinLtd has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. However, over the last five years, the stock hasn't provided much growth to shareholders in the way of total returns. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

While Wuliangye YibinLtd looks impressive, no company is worth an infinite price. The intrinsic value infographic for 000858 helps visualize whether it is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.