YOUNGY (SZSE:002192) Is Looking To Continue Growing Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at YOUNGY (SZSE:002192) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for YOUNGY, this is the formula:

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

0.0054 = CN¥20m ÷ (CN¥4.3b - CN¥519m) (Based on the trailing twelve months to September 2024).

Therefore, YOUNGY has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 6.8%.

View our latest analysis for YOUNGY

Historical performance is a great place to start when researching a stock so above you can see the gauge for YOUNGY's ROCE against it's prior returns. If you're interested in investigating YOUNGY's past further, check out this free graph covering YOUNGY's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that YOUNGY is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 0.5% on its capital. In addition to that, YOUNGY is employing 371% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, YOUNGY has decreased current liabilities to 12% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that YOUNGY has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On YOUNGY's ROCE

Long story short, we're delighted to see that YOUNGY's reinvestment activities have paid off and the company is now profitable. 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.

YOUNGY does have some risks though, and we've spotted 2 warning signs for YOUNGY that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.