Will the Promising Trends At Yantai North Andre Juice (HKG:2218) Continue?

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Yantai North Andre Juice (HKG:2218) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Yantai North Andre Juice:

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

0.076 = CN¥167m ÷ (CN¥2.3b - CN¥145m) (Based on the trailing twelve months to September 2020).

Therefore, Yantai North Andre Juice has an ROCE of 7.6%. Ultimately, that's a low return and it under-performs the Food industry average of 14%.

Check out our latest analysis for Yantai North Andre Juice

Historical performance is a great place to start when researching a stock so above you can see the gauge for Yantai North Andre Juice's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Yantai North Andre Juice, check out these free graphs here.

What Can We Tell From Yantai North Andre Juice's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.6%. The amount of capital employed has increased too, by 41%. So we're very much inspired by what we're seeing at Yantai North Andre Juice thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 6.2%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

To sum it up, Yantai North Andre Juice has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 210% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Yantai North Andre Juice and understanding this should be part of your investment process.

While Yantai North Andre Juice may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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