Shanghai MicroPort Endovascular MedTech (SHSE:688016) Will Want To Turn Around Its Return Trends

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. However, after investigating Shanghai MicroPort Endovascular MedTech (SHSE:688016), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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. To calculate this metric for Shanghai MicroPort Endovascular MedTech, this is the formula:

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

0.14 = CN¥596m ÷ (CN¥4.5b - CN¥361m) (Based on the trailing twelve months to March 2024).

Therefore, Shanghai MicroPort Endovascular MedTech has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 6.4% it's much better.

Check out our latest analysis for Shanghai MicroPort Endovascular MedTech

In the above chart we have measured Shanghai MicroPort Endovascular MedTech's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Shanghai MicroPort Endovascular MedTech .

So How Is Shanghai MicroPort Endovascular MedTech's ROCE Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 42% five years ago, while the business's capital employed increased by 1,488%. Usually this isn't ideal, but given Shanghai MicroPort Endovascular MedTech conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Shanghai MicroPort Endovascular MedTech's earnings and if they change as a result from the capital raise.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Shanghai MicroPort Endovascular MedTech. In light of this, the stock has only gained 4.9% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

One more thing to note, we've identified 2 warning signs with Shanghai MicroPort Endovascular MedTech and understanding them should be part of your investment process.

While Shanghai MicroPort Endovascular MedTech 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.