Inner Mongolia Yuan Xing Energy (SZSE:000683) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at Inner Mongolia Yuan Xing Energy (SZSE:000683) and its trend of ROCE, we really liked 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. Analysts use this formula to calculate it for Inner Mongolia Yuan Xing Energy:

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

0.17 = CN¥4.4b ÷ (CN¥33b - CN¥7.3b) (Based on the trailing twelve months to June 2024).

Therefore, Inner Mongolia Yuan Xing Energy has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Chemicals industry.

View our latest analysis for Inner Mongolia Yuan Xing Energy

Above you can see how the current ROCE for Inner Mongolia Yuan Xing Energy 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 Inner Mongolia Yuan Xing Energy .

The Trend Of ROCE

We like the trends that we're seeing from Inner Mongolia Yuan Xing Energy. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 83% more capital is being employed now too. 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 22%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Inner Mongolia Yuan Xing Energy has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

All in all, it's terrific to see that Inner Mongolia Yuan Xing Energy is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 203% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Inner Mongolia Yuan Xing Energy does have some risks though, and we've spotted 3 warning signs for Inner Mongolia Yuan Xing Energy that you might be interested in.

While Inner Mongolia Yuan Xing Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.