Fujian Yuanli Active CarbonLtd's (SZSE:300174) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Fujian Yuanli Active CarbonLtd (SZSE:300174) looks quite promising in regards to its trends of return on capital.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Fujian Yuanli Active CarbonLtd:

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

0.07 = CN¥242m ÷ (CN¥3.9b - CN¥452m) (Based on the trailing twelve months to September 2024).

Thus, Fujian Yuanli Active CarbonLtd has an ROCE of 7.0%. In absolute terms, that's a low return, but it's much better than the Chemicals industry average of 5.4%.

View our latest analysis for Fujian Yuanli Active CarbonLtd

Above you can see how the current ROCE for Fujian Yuanli Active CarbonLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Fujian Yuanli Active CarbonLtd .

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.0%. The amount of capital employed has increased too, by 260%. 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.

One more thing to note, Fujian Yuanli Active CarbonLtd 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. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Fujian Yuanli Active CarbonLtd's ROCE

All in all, it's terrific to see that Fujian Yuanli Active CarbonLtd is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 2.0% to shareholders. So with that in mind, we think the stock deserves further research.

If you'd like to know about the risks facing Fujian Yuanli Active CarbonLtd, we've discovered 1 warning sign that you should be aware of.

While Fujian Yuanli Active CarbonLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.