Returns On Capital At Yadea Group Holdings (HKG:1585) Have Stalled

What trends should we look for it we want to identify stocks that can 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. With that in mind, the ROCE of Yadea Group Holdings (HKG:1585) looks decent, right now, so lets see what the trend of returns can tell us.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Yadea Group Holdings:

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

0.14 = CN¥1.4b ÷ (CN¥25b - CN¥15b) (Based on the trailing twelve months to December 2024).

Thus, Yadea Group Holdings has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Auto industry.

View 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.

What Can We Tell From Yadea Group Holdings' ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has employed 208% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that Yadea Group Holdings has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a separate but related note, it's important to know that Yadea Group Holdings has a current liabilities to total assets ratio of 61%, 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Yadea Group Holdings' ROCE

To sum it up, Yadea Group Holdings has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 171% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Yadea Group Holdings does have some risks though, and we've spotted 1 warning sign for Yadea Group Holdings that you might be interested in.

While Yadea Group Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.