Y&G Corporation Bhd (KLSE:Y&G) Will Want To Turn Around Its Return Trends

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Y&G Corporation Bhd (KLSE:Y&G) 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. Analysts use this formula to calculate it for Y&G Corporation Bhd:

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

0.046 = RM16m ÷ (RM390m - RM45m) (Based on the trailing twelve months to December 2021).

Therefore, Y&G Corporation Bhd has an ROCE of 4.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.5%.

See our latest analysis for Y&G Corporation Bhd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Y&G Corporation Bhd's ROCE against it's prior returns. If you'd like to look at how Y&G Corporation Bhd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Y&G Corporation Bhd Tell Us?

On the surface, the trend of ROCE at Y&G Corporation Bhd doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.6% from 8.9% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Y&G Corporation Bhd's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Y&G Corporation Bhd. However, total returns to shareholders over the last five years have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing: We've identified 2 warning signs with Y&G Corporation Bhd (at least 1 which is significant) , and understanding them would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.