Slowing Rates Of Return At Tingyi (Cayman Islands) Holding (HKG:322) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Tingyi (Cayman Islands) Holding (HKG:322) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. Analysts use this formula to calculate it for Tingyi (Cayman Islands) Holding:

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

0.11 = CN¥2.9b ÷ (CN¥58b - CN¥32b) (Based on the trailing twelve months to December 2022).

Therefore, Tingyi (Cayman Islands) Holding has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.8% generated by the Food industry.

View our latest analysis for Tingyi (Cayman Islands) Holding

Above you can see how the current ROCE for Tingyi (Cayman Islands) Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Tingyi (Cayman Islands) Holding's ROCE Trending?

Over the past five years, Tingyi (Cayman Islands) Holding's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Tingyi (Cayman Islands) Holding doesn't end up being a multi-bagger in a few years time. That probably explains why Tingyi (Cayman Islands) Holding has been paying out 109% of its earnings as dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

On a separate but related note, it's important to know that Tingyi (Cayman Islands) Holding has a current liabilities to total assets ratio of 54%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Tingyi (Cayman Islands) Holding's ROCE

In summary, Tingyi (Cayman Islands) Holding isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly then, the total return to shareholders over the last five years has been flat. 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.

On a final note, we've found 2 warning signs for Tingyi (Cayman Islands) Holding that we think 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.