We Like These Underlying Return On Capital Trends At Yamada Green Resources (SGX:BJV)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So on that note, Yamada Green Resources (SGX:BJV) looks quite promising in regards to its trends of return on capital.

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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 Yamada Green Resources:

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

0.013 = CN¥3.6m ÷ (CN¥292m - CN¥7.7m) (Based on the trailing twelve months to December 2024).

Therefore, Yamada Green Resources has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Food industry average of 13%.

See our latest analysis for Yamada Green Resources

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Yamada Green Resources' past further, check out this free graph covering Yamada Green Resources' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Yamada Green Resources has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 1.3% on its capital. While returns have increased, the amount of capital employed by Yamada Green Resources has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

To sum it up, Yamada Green Resources is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 24% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Yamada Green Resources, we've spotted 3 warning signs, and 1 of them shouldn't be ignored.

While Yamada Green Resources 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.