What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Yun Lee Marine Group Holdings (HKG:2682), it didn't seem to tick all of these boxes.
Understanding 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. The formula for this calculation on Yun Lee Marine Group Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.074 = HK$23m ÷ (HK$419m - HK$107m) (Based on the trailing twelve months to September 2024).
So, Yun Lee Marine Group Holdings has an ROCE of 7.4%. In absolute terms, that's a low return but it's around the Shipping industry average of 8.1%.
See our latest analysis for Yun Lee Marine Group Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Yun Lee Marine Group Holdings' 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 Yun Lee Marine Group Holdings .
What Does the ROCE Trend For Yun Lee Marine Group Holdings Tell Us?
There are better returns on capital out there than what we're seeing at Yun Lee Marine Group Holdings. The company has consistently earned 7.4% for the last five years, and the capital employed within the business has risen 39% in that time. 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.
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 25% of total assets, this reported ROCE would probably be less than7.4% because total capital employed would be higher.The 7.4% ROCE could be even lower if current liabilities weren't 25% 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 Yun Lee Marine Group Holdings' ROCE
Long story short, while Yun Lee Marine Group Holdings has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 31% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
If you want to continue researching Yun Lee Marine Group Holdings, you might be interested to know about the 3 warning signs that our analysis has discovered.
While Yun Lee Marine Group 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.