Returns On Capital At Grandtop Yongxing GroupLtd (SHSE:601033) Have Stalled

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Grandtop Yongxing GroupLtd (SHSE:601033), it didn't seem to tick all of these boxes.

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 Grandtop Yongxing GroupLtd, this is the formula:

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

0.054 = CN¥1.1b ÷ (CN¥25b - CN¥5.0b) (Based on the trailing twelve months to September 2024).

So, Grandtop Yongxing GroupLtd has an ROCE of 5.4%. In absolute terms, that's a low return but it's around the Renewable Energy industry average of 5.6%.

View our latest analysis for Grandtop Yongxing GroupLtd

Above you can see how the current ROCE for Grandtop Yongxing 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 Grandtop Yongxing GroupLtd for free.

How Are Returns Trending?

In terms of Grandtop Yongxing GroupLtd's historical ROCE trend, it doesn't exactly demand attention. The company has employed 34% more capital in the last three years, and the returns on that capital have remained stable at 5.4%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Grandtop Yongxing GroupLtd's ROCE

As we've seen above, Grandtop Yongxing GroupLtd's returns on capital haven't increased but it is reinvesting in the business. And investors may be recognizing these trends since the stock has only returned a total of 0.04% to shareholders over the last year. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a separate note, we've found 1 warning sign for Grandtop Yongxing GroupLtd you'll probably want to 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.