The Trend Of High Returns At YanKer shop FoodLtd (SZSE:002847) Has Us Very Interested

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. With that in mind, the ROCE of YanKer shop FoodLtd (SZSE:002847) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for YanKer shop FoodLtd:

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

0.38 = CN¥626m ÷ (CN¥2.8b - CN¥1.2b) (Based on the trailing twelve months to June 2024).

Thus, YanKer shop FoodLtd has an ROCE of 38%. That's a fantastic return and not only that, it outpaces the average of 7.4% earned by companies in a similar industry.

View 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 .

So How Is YanKer shop FoodLtd's ROCE Trending?

YanKer shop FoodLtd is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 38%. The amount of capital employed has increased too, by 113%. 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 42%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On YanKer shop FoodLtd'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 YanKer shop FoodLtd has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing YanKer shop FoodLtd, we've discovered 1 warning sign that you should be aware of.

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.