Returns On Capital At Beijing Wandong Medical TechnologyLtd (SHSE:600055) Paint A Concerning Picture

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Beijing Wandong Medical TechnologyLtd (SHSE:600055) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Beijing Wandong Medical TechnologyLtd is:

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

0.019 = CN¥93m ÷ (CN¥5.3b - CN¥426m) (Based on the trailing twelve months to June 2024).

Therefore, Beijing Wandong Medical TechnologyLtd has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 5.8%.

View our latest analysis for Beijing Wandong Medical TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Beijing Wandong Medical TechnologyLtd's ROCE against it's prior returns. If you're interested in investigating Beijing Wandong Medical TechnologyLtd's past further, check out this free graph covering Beijing Wandong Medical TechnologyLtd's past earnings, revenue and cash flow.

What Can We Tell From Beijing Wandong Medical TechnologyLtd's ROCE Trend?

On the surface, the trend of ROCE at Beijing Wandong Medical TechnologyLtd doesn't inspire confidence. Around five years ago the returns on capital were 7.0%, but since then they've fallen to 1.9%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

In summary, Beijing Wandong Medical TechnologyLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 56% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One final note, you should learn about the 3 warning signs we've spotted with Beijing Wandong Medical TechnologyLtd (including 1 which shouldn't be ignored) .

While Beijing Wandong Medical TechnologyLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.