Returns On Capital Are Showing Encouraging Signs At Yue Yuen Industrial (Holdings) (HKG:551)

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Yue Yuen Industrial (Holdings) (HKG:551) so let's look a bit deeper.

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 Yue Yuen Industrial (Holdings):

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

0.081 = US$447m ÷ (US$7.2b - US$1.7b) (Based on the trailing twelve months to September 2024).

Therefore, Yue Yuen Industrial (Holdings) has an ROCE of 8.1%. Ultimately, that's a low return and it under-performs the Luxury industry average of 12%.

Check out our latest analysis for Yue Yuen Industrial (Holdings)

Above you can see how the current ROCE for Yue Yuen Industrial (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 Yue Yuen Industrial (Holdings) for free.

So How Is Yue Yuen Industrial (Holdings)'s ROCE Trending?

Yue Yuen Industrial (Holdings)'s ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 26% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To sum it up, Yue Yuen Industrial (Holdings) is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has only returned 1.2% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

Yue Yuen Industrial (Holdings) does have some risks though, and we've spotted 1 warning sign for Yue Yuen Industrial (Holdings) that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.