Returns On Capital At YCIH Green High-Performance Concrete (HKG:1847) Paint A Concerning Picture

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 investigating YCIH Green High-Performance Concrete (HKG:1847), we don't think it's current trends fit the mold of a multi-bagger.

What is 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. To calculate this metric for YCIH Green High-Performance Concrete, this is the formula:

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

0.11 = CN¥159m ÷ (CN¥4.5b - CN¥3.1b) (Based on the trailing twelve months to June 2021).

Thus, YCIH Green High-Performance Concrete has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Basic Materials industry average of 13%.

Check out our latest analysis for YCIH Green High-Performance Concrete

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of YCIH Green High-Performance Concrete, check out these free graphs here.

The Trend Of ROCE

In terms of YCIH Green High-Performance Concrete's historical ROCE movements, the trend isn't fantastic. Around four years ago the returns on capital were 39%, but since then they've fallen to 11%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Another thing to note, YCIH Green High-Performance Concrete has a high ratio of current liabilities to total assets of 69%. 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.

Our Take On YCIH Green High-Performance Concrete's ROCE

In summary, we're somewhat concerned by YCIH Green High-Performance Concrete's diminishing returns on increasing amounts of capital. Long term shareholders who've owned the stock over the last year have experienced a 38% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we found 5 warning signs for YCIH Green High-Performance Concrete (1 can't be ignored) you should be aware of.

While YCIH Green High-Performance Concrete 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. 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.