Returns On Capital Are Showing Encouraging Signs At Yankuang Energy Group (HKG:1171)

What are the early trends we should look for to identify a stock that could 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Yankuang Energy Group (HKG:1171) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Yankuang Energy Group is:

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

0.18 = CN¥37b ÷ (CN¥288b - CN¥88b) (Based on the trailing twelve months to March 2022).

Therefore, Yankuang Energy Group has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 9.1% it's much better.

View our latest analysis for Yankuang Energy Group

Above you can see how the current ROCE for Yankuang Energy Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Yankuang Energy Group.

What Does the ROCE Trend For Yankuang Energy Group Tell Us?

The trends we've noticed at Yankuang Energy Group are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 101% more capital is being employed now too. So we're very much inspired by what we're seeing at Yankuang Energy Group thanks to its ability to profitably reinvest capital.

Our Take On Yankuang Energy Group's ROCE

In summary, it's great to see that Yankuang Energy Group can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 589% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

While Yankuang Energy Group 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.