Ningbo Sanxing Medical ElectricLtd (SHSE:601567) Might Have The Makings Of A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Ningbo Sanxing Medical ElectricLtd (SHSE:601567) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Ningbo Sanxing Medical ElectricLtd, this is the formula:

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

0.12 = CN¥1.8b ÷ (CN¥21b - CN¥6.4b) (Based on the trailing twelve months to March 2024).

Thus, Ningbo Sanxing Medical ElectricLtd has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 6.0% it's much better.

Check out our latest analysis for Ningbo Sanxing Medical ElectricLtd

Above you can see how the current ROCE for Ningbo Sanxing Medical ElectricLtd 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 Ningbo Sanxing Medical ElectricLtd for free.

The Trend Of ROCE

The trends we've noticed at Ningbo Sanxing Medical ElectricLtd are quite reassuring. 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, 52% 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.

Our Take On Ningbo Sanxing Medical ElectricLtd's ROCE

In summary, it's great to see that Ningbo Sanxing Medical ElectricLtd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 510% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Ningbo Sanxing Medical ElectricLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.

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