Yongxing Special Materials TechnologyLtd (SZSE:002756) Knows How To Allocate Capital Effectively

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. 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, the ROCE of Yongxing Special Materials TechnologyLtd (SZSE:002756) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Yongxing Special Materials TechnologyLtd is:

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

0.44 = CN¥5.8b ÷ (CN¥15b - CN¥2.3b) (Based on the trailing twelve months to September 2023).

Therefore, Yongxing Special Materials TechnologyLtd has an ROCE of 44%. That's a fantastic return and not only that, it outpaces the average of 6.7% earned by companies in a similar industry.

Check out our latest analysis for Yongxing Special Materials TechnologyLtd

Above you can see how the current ROCE for Yongxing Special Materials TechnologyLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Yongxing Special Materials TechnologyLtd for free.

What Can We Tell From Yongxing Special Materials TechnologyLtd's ROCE Trend?

We like the trends that we're seeing from Yongxing Special Materials TechnologyLtd. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 44%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 280%. 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.

Our Take On Yongxing Special Materials TechnologyLtd's ROCE

To sum it up, Yongxing Special Materials TechnologyLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 380% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Yongxing Special Materials TechnologyLtd can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Yongxing Special Materials TechnologyLtd, we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.