Stock Analysis

YCIH Green High-Performance Concrete (HKG:1847) May Have Issues Allocating Its Capital

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SEHK:1847
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at YCIH Green High-Performance Concrete (HKG:1847) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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)

0.017 = CN¥24m ÷ (CN¥4.9b - CN¥3.5b) (Based on the trailing twelve months to June 2022).

So, YCIH Green High-Performance Concrete has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 7.5%.

Check out the opportunities and risks within the HK Basic Materials industry.

roce
SEHK:1847 Return on Capital Employed December 7th 2022

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'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

On the surface, the trend of ROCE at YCIH Green High-Performance Concrete doesn't inspire confidence. Around five years ago the returns on capital were 39%, but since then they've fallen to 1.7%. 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.

On a separate but related note, it's important to know that YCIH Green High-Performance Concrete has a current liabilities to total assets ratio of 72%, which we'd consider pretty high. 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

From the above analysis, we find it rather worrisome that returns on capital and sales for YCIH Green High-Performance Concrete have fallen, meanwhile the business is employing more capital than it was five years ago. It should come as no surprise then that the stock has fallen 51% over the last three years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

YCIH Green High-Performance Concrete does have some risks, we noticed 4 warning signs (and 2 which are concerning) we think you should know about.

While YCIH Green High-Performance Concrete isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether YCIH Green High-Performance Concrete is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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