Returns On Capital At China YuHua Education (HKG:6169) Have Hit The Brakes

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Having said that, from a first glance at China YuHua Education (HKG:6169) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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 China YuHua Education, this is the formula:

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

0.089 = CN¥814m ÷ (CN¥12b - CN¥3.0b) (Based on the trailing twelve months to February 2025).

Therefore, China YuHua Education has an ROCE of 8.9%. In absolute terms, that's a low return but it's around the Consumer Services industry average of 9.6%.

View our latest analysis for China YuHua Education

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

How Are Returns Trending?

In terms of China YuHua Education's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 8.9% for the last five years, and the capital employed within the business has risen 35% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In conclusion, China YuHua Education has been investing more capital into the business, but returns on that capital haven't increased. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 91% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to continue researching China YuHua Education, you might be interested to know about the 3 warning signs that our analysis has discovered.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.