The Returns On Capital At YUNDA Holding (SZSE:002120) Don't Inspire Confidence

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. 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. However, after briefly looking over the numbers, we don't think YUNDA Holding (SZSE:002120) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for YUNDA Holding, this is the formula:

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

0.085 = CN¥2.4b ÷ (CN¥38b - CN¥10b) (Based on the trailing twelve months to June 2024).

Therefore, YUNDA Holding has an ROCE of 8.5%. In absolute terms, that's a low return, but it's much better than the Logistics industry average of 6.9%.

Check out our latest analysis for YUNDA Holding

Above you can see how the current ROCE for YUNDA Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for YUNDA Holding .

What Can We Tell From YUNDA Holding's ROCE Trend?

When we looked at the ROCE trend at YUNDA Holding, we didn't gain much confidence. To be more specific, ROCE has fallen from 26% over the last five years. However it looks like YUNDA Holding 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 may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From YUNDA Holding's ROCE

Bringing it all together, while we're somewhat encouraged by YUNDA Holding's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 66% in the last five years. Therefore based on the analysis done in this article, we don't think YUNDA Holding has the makings of a multi-bagger.

If you want to continue researching YUNDA Holding, you might be interested to know about the 1 warning sign that our analysis has discovered.

While YUNDA Holding 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.