There Are Reasons To Feel Uneasy About Yes Optoelectronics (Group)'s (SZSE:002952) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Yes Optoelectronics (Group) (SZSE:002952) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Yes Optoelectronics (Group) is:

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

0.059 = CN¥53m ÷ (CN¥1.2b - CN¥276m) (Based on the trailing twelve months to September 2023).

Therefore, Yes Optoelectronics (Group) has an ROCE of 5.9%. In absolute terms, that's a low return but it's around the Tech industry average of 5.3%.

View our latest analysis for Yes Optoelectronics (Group)

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 Yes Optoelectronics (Group) has performed in the past in other metrics, you can view this free graph of Yes Optoelectronics (Group)'s past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at Yes Optoelectronics (Group), we didn't gain much confidence. Around five years ago the returns on capital were 30%, but since then they've fallen to 5.9%. However it looks like Yes Optoelectronics (Group) might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Yes Optoelectronics (Group)'s ROCE

To conclude, we've found that Yes Optoelectronics (Group) is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 27% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Yes Optoelectronics (Group) does have some risks, we noticed 5 warning signs (and 2 which are potentially serious) we think you should know about.

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.