Investors Shouldn't Overlook YanKer shop FoodLtd's (SZSE:002847) Impressive Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. And in light of that, the trends we're seeing at YanKer shop FoodLtd's (SZSE:002847) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on YanKer shop FoodLtd is:

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

0.35 = CN¥498m ÷ (CN¥2.7b - CN¥1.3b) (Based on the trailing twelve months to September 2023).

Thus, YanKer shop FoodLtd has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Food industry average of 7.6%.

Check out our latest analysis for YanKer shop FoodLtd

Above you can see how the current ROCE for YanKer shop FoodLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for YanKer shop FoodLtd .

What Can We Tell From YanKer shop FoodLtd's ROCE Trend?

The trends we've noticed at YanKer shop FoodLtd are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 35%. The amount of capital employed has increased too, by 120%. 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.

Another thing to note, YanKer shop FoodLtd has a high ratio of current liabilities to total assets of 48%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On YanKer shop FoodLtd's ROCE

All in all, it's terrific to see that YanKer shop FoodLtd is reaping the rewards from prior investments and is growing its capital base. 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.

If you want to know some of the risks facing YanKer shop FoodLtd we've found 3 warning signs (1 is concerning!) that you should be aware of before investing here.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.