Returns At Eyebright Medical Technology (Beijing) (SHSE:688050) Are On The Way Up

Simply Wall St · 10/18 23:13

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Eyebright Medical Technology (Beijing) (SHSE:688050) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Eyebright Medical Technology (Beijing):

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

0.12 = CN¥380m ÷ (CN¥3.4b - CN¥322m) (Based on the trailing twelve months to June 2024).

Thus, Eyebright Medical Technology (Beijing) has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 5.8% generated by the Medical Equipment industry.

Check out our latest analysis for Eyebright Medical Technology (Beijing)

roce
SHSE:688050 Return on Capital Employed October 18th 2024

Above you can see how the current ROCE for Eyebright Medical Technology (Beijing) compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Eyebright Medical Technology (Beijing) for free.

What Does the ROCE Trend For Eyebright Medical Technology (Beijing) Tell Us?

We like the trends that we're seeing from Eyebright Medical Technology (Beijing). The data shows that returns on capital have increased substantially over the last five years to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 407% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Eyebright Medical Technology (Beijing)'s ROCE

To sum it up, Eyebright Medical Technology (Beijing) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Given the stock has declined 32% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Eyebright Medical Technology (Beijing) does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.