Our Take On The Returns On Capital At Yangzijiang Shipbuilding (Holdings) (SGX:BS6)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Yangzijiang Shipbuilding (Holdings) (SGX:BS6) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Yangzijiang Shipbuilding (Holdings) is:

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

0.10 = CN¥3.7b ÷ (CN¥46b - CN¥10b) (Based on the trailing twelve months to September 2020).

Thus, Yangzijiang Shipbuilding (Holdings) has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 6.3% generated by the Machinery industry.

Check out our latest analysis for Yangzijiang Shipbuilding (Holdings)

In the above chart we have measured Yangzijiang Shipbuilding (Holdings)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Yangzijiang Shipbuilding (Holdings).

How Are Returns Trending?

There hasn't been much to report for Yangzijiang Shipbuilding (Holdings)'s returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Yangzijiang Shipbuilding (Holdings) to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Yangzijiang Shipbuilding (Holdings) has been paying out a decent 30% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

What We Can Learn From Yangzijiang Shipbuilding (Holdings)'s ROCE

We can conclude that in regards to Yangzijiang Shipbuilding (Holdings)'s returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 32% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to continue researching Yangzijiang Shipbuilding (Holdings), you might be interested to know about the 1 warning sign that our analysis has discovered.

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This article by Simply Wall St is general in nature. 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.
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