Guangxi Yuegui Guangye Holdings (SZSE:000833) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Guangxi Yuegui Guangye Holdings (SZSE:000833) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Guangxi Yuegui Guangye Holdings:

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

0.082 = CN¥362m ÷ (CN¥5.8b - CN¥1.4b) (Based on the trailing twelve months to September 2024).

Therefore, Guangxi Yuegui Guangye Holdings has an ROCE of 8.2%. In absolute terms, that's a low return, but it's much better than the Forestry industry average of 6.5%.

Check out our latest analysis for Guangxi Yuegui Guangye Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Guangxi Yuegui Guangye Holdings' past further, check out this free graph covering Guangxi Yuegui Guangye Holdings' past earnings, revenue and cash flow.

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 8.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 52% 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.

The Bottom Line

All in all, it's terrific to see that Guangxi Yuegui Guangye Holdings is reaping the rewards from prior investments and is growing its capital base. And a remarkable 248% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

Guangxi Yuegui Guangye Holdings does have some risks though, and we've spotted 1 warning sign for Guangxi Yuegui Guangye Holdings that you might be interested in.

While Guangxi Yuegui Guangye Holdings 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.