There's Been No Shortage Of Growth Recently For Yinbang Clad MaterialLtd's (SZSE:300337) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. 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 looked at Yinbang Clad MaterialLtd (SZSE:300337) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 Yinbang Clad MaterialLtd, this is the formula:

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

0.046 = CN¥174m ÷ (CN¥4.5b - CN¥748m) (Based on the trailing twelve months to March 2024).

So, Yinbang Clad MaterialLtd has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 6.7%.

Check out our latest analysis for Yinbang Clad MaterialLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Yinbang Clad MaterialLtd's past further, check out this free graph covering Yinbang Clad MaterialLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Yinbang Clad MaterialLtd Tell Us?

Yinbang Clad MaterialLtd has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 4.6% on its capital. In addition to that, Yinbang Clad MaterialLtd is employing 100% 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 17%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Yinbang Clad MaterialLtd's ROCE

Long story short, we're delighted to see that Yinbang Clad MaterialLtd'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. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with Yinbang Clad MaterialLtd (at least 2 which are a bit unpleasant) , and understanding these would certainly be useful.

While Yinbang Clad MaterialLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.