ShenZhen YUTO Packaging Technology (SZSE:002831) Will Be Hoping To Turn Its Returns On Capital Around

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at ShenZhen YUTO Packaging Technology (SZSE:002831), it didn't seem to tick all of these boxes.

What Is 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. To calculate this metric for ShenZhen YUTO Packaging Technology, this is the formula:

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

0.14 = CN¥1.9b ÷ (CN¥21b - CN¥7.9b) (Based on the trailing twelve months to March 2024).

So, ShenZhen YUTO Packaging Technology has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 4.7% generated by the Packaging industry.

Check out our latest analysis for ShenZhen YUTO Packaging Technology

In the above chart we have measured ShenZhen YUTO Packaging Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering ShenZhen YUTO Packaging Technology for free.

How Are Returns Trending?

On the surface, the trend of ROCE at ShenZhen YUTO Packaging Technology doesn't inspire confidence. Over the last five years, returns on capital have decreased to 14% from 18% five years ago. However it looks like ShenZhen YUTO Packaging Technology might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On ShenZhen YUTO Packaging Technology's ROCE

To conclude, we've found that ShenZhen YUTO Packaging Technology is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 54% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Like most companies, ShenZhen YUTO Packaging Technology does come with some risks, and we've found 1 warning sign that you should be aware of.

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.