The Returns On Capital At Beijing Yuanlong Yato Culture DisseminationLtd (SZSE:002878) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Beijing Yuanlong Yato Culture DisseminationLtd (SZSE:002878) and its ROCE trend, we weren't exactly thrilled.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Beijing Yuanlong Yato Culture DisseminationLtd, this is the formula:

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

0.029 = CN¥46m ÷ (CN¥2.5b - CN¥855m) (Based on the trailing twelve months to June 2024).

Therefore, Beijing Yuanlong Yato Culture DisseminationLtd has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Media industry average of 4.1%.

See our latest analysis for Beijing Yuanlong Yato Culture DisseminationLtd

In the above chart we have measured Beijing Yuanlong Yato Culture DisseminationLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Beijing Yuanlong Yato Culture DisseminationLtd .

What The Trend Of ROCE Can Tell Us

We weren't thrilled with the trend because Beijing Yuanlong Yato Culture DisseminationLtd's ROCE has reduced by 85% over the last five years, while the business employed 143% more capital. Usually this isn't ideal, but given Beijing Yuanlong Yato Culture DisseminationLtd conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Beijing Yuanlong Yato Culture DisseminationLtd might not have received a full period of earnings contribution from it.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Beijing Yuanlong Yato Culture DisseminationLtd. However, despite the promising trends, the stock has fallen 14% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing to note, we've identified 1 warning sign with Beijing Yuanlong Yato Culture DisseminationLtd and understanding it should be part of your investment process.

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.