Yamada Green Resources (SGX:BJV) Is Experiencing Growth In Returns On Capital
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Yamada Green Resources (SGX:BJV) and its trend of ROCE, we really liked what we saw.
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 Yamada Green Resources is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.024 = CN¥8.0m ÷ (CN¥339m - CN¥10m) (Based on the trailing twelve months to June 2023).
Thus, Yamada Green Resources has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Food industry average of 12%.
See our latest analysis for Yamada Green Resources
Historical performance is a great place to start when researching a stock so above you can see the gauge for Yamada Green Resources' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Yamada Green Resources, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
We're delighted to see that Yamada Green Resources is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 2.4%, which is always encouraging. While returns have increased, the amount of capital employed by Yamada Green Resources has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.
One more thing to note, Yamada Green Resources has decreased current liabilities to 3.0% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Yamada Green Resources has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
The Key Takeaway
To sum it up, Yamada Green Resources is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 33% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.
If you'd like to know more about Yamada Green Resources, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.
While Yamada Green Resources 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.
