Returns Are Gaining Momentum At Eyebright Medical Technology (Beijing) (SHSE:688050)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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.

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 Eyebright Medical Technology (Beijing) is:

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

0.12 = CN¥337m ÷ (CN¥3.0b - CN¥293m) (Based on the trailing twelve months to March 2024).

So, Eyebright Medical Technology (Beijing) has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Medical Equipment industry.

See our latest analysis for Eyebright Medical Technology (Beijing)

In the above chart we have measured Eyebright Medical Technology (Beijing)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Eyebright Medical Technology (Beijing) .

How Are Returns Trending?

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%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 367%. So we're very much inspired by what we're seeing at Eyebright Medical Technology (Beijing) thanks to its ability to profitably reinvest capital.

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

All in all, it's terrific to see that Eyebright Medical Technology (Beijing) is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 60% over the last three years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we've found 1 warning sign for Eyebright Medical Technology (Beijing) that we think you should be aware of.

While Eyebright Medical Technology (Beijing) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com