Why We Like The Returns At Yankey Engineering (TWSE:6691)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Yankey Engineering's (TWSE:6691) returns on capital, so let's have a look.

Understanding 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 Yankey Engineering is:

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

0.45 = NT$2.1b ÷ (NT$12b - NT$7.0b) (Based on the trailing twelve months to March 2024).

So, Yankey Engineering has an ROCE of 45%. In absolute terms that's a great return and it's even better than the Construction industry average of 12%.

See our latest analysis for Yankey Engineering

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

The Trend Of ROCE

Yankey Engineering is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 45%. Basically the business is earning more per dollar of capital invested and in addition to that, 149% more capital is being employed now too. So we're very much inspired by what we're seeing at Yankey Engineering thanks to its ability to profitably reinvest capital.

On a side note, Yankey Engineering's current liabilities are still rather high at 59% of total assets. 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.

The Bottom Line On Yankey Engineering's ROCE

To sum it up, Yankey Engineering has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Yankey Engineering can keep these trends up, it could have a bright future ahead.

If you want to continue researching Yankey Engineering, you might be interested to know about the 1 warning sign that our analysis has discovered.

Yankey Engineering is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.