Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at YONFER Agricultural Technology (SZSE:000902) and its ROCE trend, we weren't exactly thrilled.
What Is 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 YONFER Agricultural Technology is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = CN¥1.3b ÷ (CN¥16b - CN¥4.7b) (Based on the trailing twelve months to September 2023).
Thus, YONFER Agricultural Technology has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.8% generated by the Chemicals industry.
View our latest analysis for YONFER Agricultural Technology
Above you can see how the current ROCE for YONFER Agricultural Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for YONFER Agricultural Technology.
How Are Returns Trending?
When we looked at the ROCE trend at YONFER Agricultural Technology, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 11% from 15% five years ago. However it looks like YONFER Agricultural Technology might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
In Conclusion...
To conclude, we've found that YONFER Agricultural Technology is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 40% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
If you want to continue researching YONFER Agricultural Technology, you might be interested to know about the 2 warning signs that our analysis has discovered.
While YONFER Agricultural Technology 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.