The Return Trends At Yau Lee Holdings (HKG:406) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Yau Lee Holdings (HKG:406) and its trend of ROCE, we really liked what we saw.

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Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Yau Lee Holdings is:

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

0.036 = HK$72m ÷ (HK$6.7b - HK$4.7b) (Based on the trailing twelve months to September 2025).

So, Yau Lee Holdings has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 6.1%.

View our latest analysis for Yau Lee Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Yau Lee Holdings' ROCE against it's prior returns. If you're interested in investigating Yau Lee Holdings' past further, check out this free graph covering Yau Lee Holdings' past earnings, revenue and cash flow.

So How Is Yau Lee Holdings' ROCE Trending?

While the ROCE is still rather low for Yau Lee Holdings, we're glad to see it heading in the right direction. We found that the returns on capital employed over the last five years have risen by 113%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 24% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 70% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line

In the end, Yau Lee Holdings has proven it's capital allocation skills are good with those higher returns from less amount of capital. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Yau Lee Holdings does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are concerning...

While Yau Lee 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.