Returns On Capital Signal Tricky Times Ahead For Yantai Ishikawa Sealing Technology (SZSE:301020)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Yantai Ishikawa Sealing Technology (SZSE:301020), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Yantai Ishikawa Sealing Technology:

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

0.07 = CN¥68m ÷ (CN¥1.2b - CN¥221m) (Based on the trailing twelve months to June 2024).

Thus, Yantai Ishikawa Sealing Technology has an ROCE of 7.0%. On its own that's a low return, but compared to the average of 5.5% generated by the Chemicals industry, it's much better.

Check out our latest analysis for Yantai Ishikawa Sealing Technology

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'd like to look at how Yantai Ishikawa Sealing Technology has performed in the past in other metrics, you can view this free graph of Yantai Ishikawa Sealing Technology's past earnings, revenue and cash flow.

So How Is Yantai Ishikawa Sealing Technology's ROCE Trending?

In terms of Yantai Ishikawa Sealing Technology's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 30% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Yantai Ishikawa Sealing Technology's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Yantai Ishikawa Sealing Technology. These growth trends haven't led to growth returns though, since the stock has fallen 34% over the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we found 3 warning signs for Yantai Ishikawa Sealing Technology (2 are concerning) you should be aware of.

While Yantai Ishikawa Sealing Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.