Returns Are Gaining Momentum At Guangxi Yuegui Guangye Holdings (SZSE:000833)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Guangxi Yuegui Guangye Holdings' (SZSE:000833) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Guangxi Yuegui Guangye Holdings is:

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

0.067 = CN¥262m ÷ (CN¥5.7b - CN¥1.7b) (Based on the trailing twelve months to June 2024).

Thus, Guangxi Yuegui Guangye Holdings has an ROCE of 6.7%. In absolute terms, that's a low return but it's around the Forestry industry average of 6.2%.

View 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'd like to look at how Guangxi Yuegui Guangye Holdings has performed in the past in other metrics, you can view this free graph of Guangxi Yuegui Guangye Holdings' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

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 6.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 34% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Guangxi Yuegui Guangye Holdings' ROCE

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 investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 57% return over the last five years. In light of that, we think it's worth looking further into this stock because if Guangxi Yuegui Guangye Holdings can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Guangxi Yuegui Guangye Holdings, we've discovered 1 warning sign that you should be aware of.

While Guangxi Yuegui Guangye Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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

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.