Yusei Holdings (HKG:96) Is Reinvesting At Lower Rates Of Return

There are a few key trends to look for if we want to identify the next 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. In light of that, when we looked at Yusei Holdings (HKG:96) and its ROCE trend, we weren't exactly thrilled.

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

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 Yusei Holdings, this is the formula:

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

0.056 = CN¥66m ÷ (CN¥2.6b - CN¥1.5b) (Based on the trailing twelve months to June 2024).

Therefore, Yusei Holdings has an ROCE of 5.6%. In absolute terms, that's a low return but it's around the Chemicals industry average of 6.6%.

Check out our latest analysis for Yusei Holdings

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

How Are Returns Trending?

When we looked at the ROCE trend at Yusei Holdings, we didn't gain much confidence. To be more specific, ROCE has fallen from 7.9% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

Another thing to note, Yusei Holdings has a high ratio of current liabilities to total assets of 55%. 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.

What We Can Learn From Yusei Holdings' ROCE

To conclude, we've found that Yusei Holdings is reinvesting in the business, but returns have been falling. Since the stock has declined 32% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to know some of the risks facing Yusei Holdings we've found 3 warning signs (1 is potentially serious!) that you should be aware of before investing here.

While Yusei Holdings 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.