We Like These Underlying Return On Capital Trends At Yongxing Special Materials TechnologyLtd (SZSE:002756)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. With that in mind, we've noticed some promising trends at Yongxing Special Materials TechnologyLtd (SZSE:002756) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Yongxing Special Materials TechnologyLtd:

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

0.17 = CN¥2.4b ÷ (CN¥16b - CN¥2.3b) (Based on the trailing twelve months to June 2024).

Therefore, Yongxing Special Materials TechnologyLtd has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Metals and Mining industry.

Check out our latest analysis for Yongxing Special Materials TechnologyLtd

In the above chart we have measured Yongxing Special Materials TechnologyLtd'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 Yongxing Special Materials TechnologyLtd for free.

So How Is Yongxing Special Materials TechnologyLtd's ROCE Trending?

Yongxing Special Materials TechnologyLtd is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 273%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

All in all, it's terrific to see that Yongxing Special Materials TechnologyLtd is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 246% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 2 warning signs facing Yongxing Special Materials TechnologyLtd that you might find interesting.

While Yongxing Special Materials TechnologyLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.