Returns At China Yongda Automobiles Services Holdings (HKG:3669) Appear To Be Weighed Down

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. That's why when we briefly looked at China Yongda Automobiles Services Holdings' (HKG:3669) ROCE trend, we were pretty happy with what we saw.

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. Analysts use this formula to calculate it for China Yongda Automobiles Services Holdings:

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

0.14 = CN¥2.7b ÷ (CN¥35b - CN¥16b) (Based on the trailing twelve months to December 2020).

Thus, China Yongda Automobiles Services Holdings has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% generated by the Specialty Retail industry.

Check out our latest analysis for China Yongda Automobiles Services Holdings

Above you can see how the current ROCE for China Yongda Automobiles Services Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering China Yongda Automobiles Services Holdings here for free.

What Can We Tell From China Yongda Automobiles Services Holdings' ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 200% in that time. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 46% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

What We Can Learn From China Yongda Automobiles Services Holdings' ROCE

In the end, China Yongda Automobiles Services Holdings has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 291% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a final note, we've found 2 warning signs for China Yongda Automobiles Services Holdings that we think you should be aware of.

While China Yongda Automobiles Services Holdings 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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