Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Yangtze Optical Fibre And Cable Limited (HKG:6869) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Yangtze Optical Fibre And Cable Limited is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = CN¥1.0b ÷ (CN¥32b - CN¥10b) (Based on the trailing twelve months to December 2024).
Therefore, Yangtze Optical Fibre And Cable Limited has an ROCE of 4.9%. On its own, that's a low figure but it's around the 4.4% average generated by the Communications industry.
Check out our latest analysis for Yangtze Optical Fibre And Cable Limited
Above you can see how the current ROCE for Yangtze Optical Fibre And Cable Limited compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Yangtze Optical Fibre And Cable Limited .
So How Is Yangtze Optical Fibre And Cable Limited's ROCE Trending?
The returns on capital haven't changed much for Yangtze Optical Fibre And Cable Limited in recent years. The company has employed 114% more capital in the last five years, and the returns on that capital have remained stable at 4.9%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
What We Can Learn From Yangtze Optical Fibre And Cable Limited's ROCE
In conclusion, Yangtze Optical Fibre And Cable Limited has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 16% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
One more thing, we've spotted 4 warning signs facing Yangtze Optical Fibre And Cable Limited that you might find interesting.
While Yangtze Optical Fibre And Cable Limited 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.