Yongmao Holdings (SGX:BKX) Might Be Having Difficulty Using Its Capital Effectively
We've discovered 5 warning signs about Yongmao Holdings. View them for free.
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Yongmao Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.027 = CN¥32m ÷ (CN¥2.2b - CN¥1.0b) (Based on the trailing twelve months to September 2024).
Thus, Yongmao Holdings has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Machinery industry average of 4.4%.
See our latest analysis for Yongmao Holdings
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're interested in investigating Yongmao Holdings' past further, check out this free graph covering Yongmao Holdings' past earnings, revenue and cash flow.
On the surface, the trend of ROCE at Yongmao Holdings doesn't inspire confidence. To be more specific, ROCE has fallen from 15% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
On a side note, Yongmao Holdings' current liabilities are still rather high at 46% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
We're a bit apprehensive about Yongmao Holdings because despite more capital being deployed in the business, returns on that capital and sales have both fallen. And long term shareholders have watched their investments stay flat over the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
On a final note, we found 5 warning signs for Yongmao Holdings (2 can't be ignored) you should be aware of.
While Yongmao Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.
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