The Returns At China YuHua Education (HKG:6169) Aren't Growing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at China YuHua Education (HKG:6169) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for China YuHua Education:

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).

So, China YuHua Education has an ROCE of 8.9%. Even though it's in line with the industry average of 9.2%, it's still a low return by itself.

See our latest analysis for China YuHua Education

Above you can see how the current ROCE for China YuHua Education 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 China YuHua Education for free.

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.

Our Take On China YuHua Education's ROCE

As we've seen above, China YuHua Education's returns on capital haven't increased but it is reinvesting in the business. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 94% over the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with China YuHua Education (including 1 which can't be ignored) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.