Investors Could Be Concerned With Yeebo (International Holdings)'s (HKG:259) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Yeebo (International Holdings) (HKG:259) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Yeebo (International Holdings), this is the formula:

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

0.0035 = HK$7.9m ÷ (HK$2.5b - HK$293m) (Based on the trailing twelve months to March 2021).

Thus, Yeebo (International Holdings) has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Electronic industry average of 8.2%.

View our latest analysis for Yeebo (International Holdings)

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 Yeebo (International Holdings), check out these free graphs here.

The Trend Of ROCE

On the surface, the trend of ROCE at Yeebo (International Holdings) doesn't inspire confidence. To be more specific, ROCE has fallen from 3.0% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

In summary, Yeebo (International Holdings) is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 59% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know more about Yeebo (International Holdings), we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.

While Yeebo (International 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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