The Return Trends At YTO Express (International) Holdings (HKG:6123) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at YTO Express (International) Holdings (HKG:6123) so let's look a bit deeper.

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 YTO Express (International) Holdings is:

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

0.19 = HK$150m ÷ (HK$1.4b - HK$596m) (Based on the trailing twelve months to June 2020).

Thus, YTO Express (International) Holdings has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Logistics industry average of 7.7% it's much better.

Check out our latest analysis for YTO Express (International) Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for YTO Express (International) Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of YTO Express (International) Holdings, check out these free graphs here.

The Trend Of ROCE

Investors would be pleased with what's happening at YTO Express (International) Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 74%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a separate but related note, it's important to know that YTO Express (International) Holdings has a current liabilities to total assets ratio of 42%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

To sum it up, YTO Express (International) Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 338% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 1 warning sign for YTO Express (International) Holdings you'll probably want to know about.

While YTO Express (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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