The Returns On Capital At Yangtze Optical Fibre And Cable Limited (HKG:6869) Don't Inspire Confidence

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Yangtze Optical Fibre And Cable Limited (HKG:6869) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Yangtze Optical Fibre And Cable Limited is:

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

0.045 = CN¥914m ÷ (CN¥30b - CN¥9.2b) (Based on the trailing twelve months to September 2023).

So, Yangtze Optical Fibre And Cable Limited has an ROCE of 4.5%. In absolute terms, that's a low return but it's around the Communications industry average of 5.1%.

View our latest analysis for Yangtze Optical Fibre And Cable Limited

Above you can see how the current ROCE for Yangtze Optical Fibre And Cable Limited compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

In terms of Yangtze Optical Fibre And Cable Limited's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 4.5% from 17% five years ago. However it looks like Yangtze Optical Fibre And Cable Limited might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Yangtze Optical Fibre And Cable Limited's ROCE

To conclude, we've found that Yangtze Optical Fibre And Cable Limited is reinvesting in the business, but returns have been falling. Since the stock has declined 62% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a separate note, we've found 1 warning sign for Yangtze Optical Fibre And Cable Limited you'll probably want to know about.

While Yangtze Optical Fibre And Cable Limited 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.