Returns At Tingyi (Cayman Islands) Holding (HKG:322) Are On The Way Up

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Tingyi (Cayman Islands) Holding's (HKG:322) returns on capital, so let's have a look.

What Is 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. To calculate this metric for Tingyi (Cayman Islands) Holding, this is the formula:

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

0.12 = CN¥3.3b ÷ (CN¥64b - CN¥36b) (Based on the trailing twelve months to June 2022).

Therefore, Tingyi (Cayman Islands) Holding has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.6% generated by the Food industry.

See our latest analysis for Tingyi (Cayman Islands) Holding

In the above chart we have measured Tingyi (Cayman Islands) Holding'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 report for Tingyi (Cayman Islands) Holding.

The Trend Of ROCE

Tingyi (Cayman Islands) Holding's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 52% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 56% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

Our Take On Tingyi (Cayman Islands) Holding's ROCE

In summary, we're delighted to see that Tingyi (Cayman Islands) Holding has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 38% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing Tingyi (Cayman Islands) Holding, we've discovered 1 warning sign that you should be aware of.

While Tingyi (Cayman Islands) Holding 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.