YCIH Green High-Performance Concrete (HKG:1847) Could Be Struggling To Allocate Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on YCIH Green High-Performance Concrete is:

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

0.0088 = CN¥12m ÷ (CN¥4.8b - CN¥3.4b) (Based on the trailing twelve months to December 2021).

Therefore, YCIH Green High-Performance Concrete has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 9.3%.

View our latest analysis for YCIH Green High-Performance Concrete

Historical performance is a great place to start when researching a stock so above you can see the gauge for YCIH Green High-Performance Concrete's ROCE against it's prior returns. If you're interested in investigating YCIH Green High-Performance Concrete's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of YCIH Green High-Performance Concrete's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.9% from 45% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. 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.

On a side note, YCIH Green High-Performance Concrete's current liabilities are still rather high at 71% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

In summary, we're somewhat concerned by YCIH Green High-Performance Concrete's diminishing returns on increasing amounts of capital. Investors haven't taken kindly to these developments, since the stock has declined 41% from where it was year ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One more thing: We've identified 3 warning signs with YCIH Green High-Performance Concrete (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.