Yihai International Holding (HKG:1579) Will Want To Turn Around Its Return Trends

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Looking at Yihai International Holding (HKG:1579), it does have a high ROCE right now, but lets see how returns are trending.

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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. To calculate this metric for Yihai International Holding, this is the formula:

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

0.23 = CN¥1.1b ÷ (CN¥5.4b - CN¥559m) (Based on the trailing twelve months to June 2025).

So, Yihai International Holding has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Food industry average of 13%.

Check out our latest analysis for Yihai International Holding

Above you can see how the current ROCE for Yihai International Holding 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 Yihai International Holding .

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Yihai International Holding doesn't inspire confidence. While it's comforting that the ROCE is high, five years ago it was 41%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

What We Can Learn From Yihai International Holding's ROCE

To conclude, we've found that Yihai International Holding is reinvesting in the business, but returns have been falling. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 87% in the last five years. Therefore based on the analysis done in this article, we don't think Yihai International Holding has the makings of a multi-bagger.

On a final note, we've found 1 warning sign for Yihai International Holding that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.