There's Been No Shortage Of Growth Recently For YuanShengTai Dairy Farm's (HKG:1431) Returns On Capital

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at YuanShengTai Dairy Farm (HKG:1431) and its trend of ROCE, we really liked what we saw.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for YuanShengTai Dairy Farm:

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

0.15 = CN¥901m ÷ (CN¥7.7b - CN¥1.6b) (Based on the trailing twelve months to June 2025).

So, YuanShengTai Dairy Farm has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Food industry average of 13%.

See our latest analysis for YuanShengTai Dairy Farm

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of YuanShengTai Dairy Farm.

What Does the ROCE Trend For YuanShengTai Dairy Farm Tell Us?

The trends we've noticed at YuanShengTai Dairy Farm are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 32%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From YuanShengTai Dairy Farm's ROCE

All in all, it's terrific to see that YuanShengTai Dairy Farm is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 67% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 2 warning signs for YuanShengTai Dairy Farm (1 is potentially serious) you should be aware of.

While YuanShengTai Dairy Farm 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.