GuiZhouYongJi PrintingLtd (SHSE:603058) Hasn't Managed To Accelerate Its Returns

Simply Wall St · 10/18 22:43

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at GuiZhouYongJi PrintingLtd's (SHSE:603058) ROCE trend, we were pretty happy with what we saw.

What Is 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 GuiZhouYongJi PrintingLtd is:

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

0.11 = CN¥177m ÷ (CN¥2.0b - CN¥344m) (Based on the trailing twelve months to September 2024).

Therefore, GuiZhouYongJi PrintingLtd has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 5.3% it's much better.

See our latest analysis for GuiZhouYongJi PrintingLtd

roce
SHSE:603058 Return on Capital Employed October 18th 2024

Historical performance is a great place to start when researching a stock so above you can see the gauge for GuiZhouYongJi PrintingLtd'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 GuiZhouYongJi PrintingLtd.

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. The company has employed 59% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 17% of total assets, this reported ROCE would probably be less than11% because total capital employed would be higher.The 11% ROCE could be even lower if current liabilities weren't 17% of total assets, because the the formula would show a larger base of total capital employed. So while current liabilities isn't high right now, keep an eye out in case it increases further, because this can introduce some elements of risk.

What We Can Learn From GuiZhouYongJi PrintingLtd's ROCE

In the end, GuiZhouYongJi PrintingLtd has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 42% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we found 2 warning signs for GuiZhouYongJi PrintingLtd (1 is significant) you should be aware of.

While GuiZhouYongJi PrintingLtd 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.