ShenZhen YUTO Packaging Technology's (SZSE:002831) Returns Have Hit A Wall

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over ShenZhen YUTO Packaging Technology's (SZSE:002831) trend of ROCE, we liked what we saw.

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

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 ShenZhen YUTO Packaging Technology is:

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

0.15 = CN¥1.9b ÷ (CN¥22b - CN¥8.6b) (Based on the trailing twelve months to June 2024).

So, ShenZhen YUTO Packaging Technology has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 5.3% it's much better.

View 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're interested, you can view the analysts predictions in our free analyst report for ShenZhen YUTO Packaging Technology .

What Can We Tell From ShenZhen YUTO Packaging Technology's ROCE Trend?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 81% more capital into its operations. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

To sum it up, ShenZhen YUTO Packaging Technology has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock has only delivered a 16% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

One more thing, we've spotted 1 warning sign facing ShenZhen YUTO Packaging Technology that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.