What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Yadea Group Holdings' (HKG:1585) trend of ROCE, we really liked what we saw.
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. To calculate this metric for Yadea Group Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.22 = CN¥2.2b ÷ (CN¥30b - CN¥20b) (Based on the trailing twelve months to June 2025).
Therefore, Yadea Group Holdings has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Auto industry average of 10%.
See our latest analysis for Yadea Group Holdings
Above you can see how the current ROCE for Yadea Group Holdings 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 Yadea Group Holdings for free.
The Trend Of ROCE
It's hard not to be impressed by Yadea Group Holdings' returns on capital. Over the past five years, ROCE has remained relatively flat at around 22% and the business has deployed 185% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Yadea Group Holdings can keep this up, we'd be very optimistic about its future.
On a separate but related note, it's important to know that Yadea Group Holdings has a current liabilities to total assets ratio of 67%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
The Bottom Line On Yadea Group Holdings' ROCE
Yadea Group Holdings has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. In light of this, the stock has only gained 27% over the last five years for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 1585 that compares the share price and estimated value.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
Valuation is complex, but we're here to simplify it.
Discover if Yadea Group Holdings might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.