Yangzijiang Shipbuilding (Holdings) (SGX:BS6) Hasn't Managed To Accelerate Its Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. However, after investigating Yangzijiang Shipbuilding (Holdings) (SGX:BS6), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Yangzijiang Shipbuilding (Holdings) is:

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

0.087 = CN¥3.3b ÷ (CN¥47b - CN¥9.1b) (Based on the trailing twelve months to June 2021).

Therefore, Yangzijiang Shipbuilding (Holdings) has an ROCE of 8.7%. On its own that's a low return, but compared to the average of 6.7% generated by the Machinery industry, it's much better.

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, you can check out the forecasts from the analysts covering Yangzijiang Shipbuilding (Holdings) here for free.

How Are Returns Trending?

In terms of Yangzijiang Shipbuilding (Holdings)'s historical ROCE trend, it doesn't exactly demand attention. The company has employed 27% more capital in the last five years, and the returns on that capital have remained stable at 8.7%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

Long story short, while Yangzijiang Shipbuilding (Holdings) has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 84% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a separate note, we've found 2 warning signs for Yangzijiang Shipbuilding (Holdings) you'll probably want to know about.

While Yangzijiang Shipbuilding (Holdings) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.