YTO Express GroupLtd's (SHSE:600233) Returns Have Hit A Wall

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at YTO Express GroupLtd's (SHSE:600233) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on YTO Express GroupLtd is:

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

0.15 = CN¥4.7b ÷ (CN¥44b - CN¥12b) (Based on the trailing twelve months to June 2024).

Therefore, YTO Express GroupLtd has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Logistics industry average of 7.0% it's much better.

View our latest analysis for YTO Express GroupLtd

Above you can see how the current ROCE for YTO Express GroupLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering YTO Express GroupLtd for free.

What Can We Tell From YTO Express GroupLtd's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 105% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that YTO Express GroupLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On YTO Express GroupLtd's ROCE

In the end, YTO Express GroupLtd has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 63% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, YTO Express GroupLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.