Some Investors May Be Worried About Xiamen Yan Palace Bird's Nest Industry's (HKG:1497) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Looking at Xiamen Yan Palace Bird's Nest Industry (HKG:1497), it does have a high ROCE right now, but lets see how returns are trending.

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What Is 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. To calculate this metric for Xiamen Yan Palace Bird's Nest Industry, this is the formula:

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

0.30 = CN¥250m ÷ (CN¥1.4b - CN¥515m) (Based on the trailing twelve months to June 2025).

Therefore, Xiamen Yan Palace Bird's Nest Industry has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

See our latest analysis for Xiamen Yan Palace Bird's Nest Industry

In the above chart we have measured Xiamen Yan Palace Bird's Nest Industry's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Xiamen Yan Palace Bird's Nest Industry .

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Xiamen Yan Palace Bird's Nest Industry doesn't inspire confidence. To be more specific, while the ROCE is still high, it's fallen from 53% where it was five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, Xiamen Yan Palace Bird's Nest Industry has decreased its current liabilities to 38% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From Xiamen Yan Palace Bird's Nest Industry's ROCE

In summary, Xiamen Yan Palace Bird's Nest Industry is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last year, the stock has given away 32% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

Xiamen Yan Palace Bird's Nest Industry could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 1497 on our platform quite valuable.

Xiamen Yan Palace Bird's Nest Industry is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.