Return Trends At Qingdao Yunlu Advanced Materials Technology (SHSE:688190) Aren't Appealing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. That's why when we briefly looked at Qingdao Yunlu Advanced Materials Technology's (SHSE:688190) ROCE trend, we were pretty happy with what we saw.

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 Qingdao Yunlu Advanced Materials Technology is:

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

0.14 = CN¥344m ÷ (CN¥2.9b - CN¥456m) (Based on the trailing twelve months to March 2024).

Thus, Qingdao Yunlu Advanced Materials Technology has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.7% generated by the Metals and Mining industry.

Check out our latest analysis for Qingdao Yunlu Advanced Materials Technology

Above you can see how the current ROCE for Qingdao Yunlu Advanced Materials Technology 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 Qingdao Yunlu Advanced Materials Technology .

What Can We Tell From Qingdao Yunlu Advanced Materials Technology's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 159% more capital in the last three years, and the returns on that capital have remained stable at 14%. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Qingdao Yunlu Advanced Materials Technology's ROCE

In the end, Qingdao Yunlu Advanced Materials Technology has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 13% return if they held over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know about the risks facing Qingdao Yunlu Advanced Materials Technology, we've discovered 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com