Goodwill E-Health Info (SHSE:688246) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Speaking of which, we noticed some great changes in Goodwill E-Health Info's (SHSE:688246) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 Goodwill E-Health Info is:

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

0.0034 = CN¥6.4m ÷ (CN¥2.5b - CN¥587m) (Based on the trailing twelve months to December 2023).

So, Goodwill E-Health Info has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Healthcare Services industry average of 11%.

View our latest analysis for Goodwill E-Health Info

Above you can see how the current ROCE for Goodwill E-Health Info compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Goodwill E-Health Info .

How Are Returns Trending?

We're delighted to see that Goodwill E-Health Info is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 0.3% on its capital. Not only that, but the company is utilizing 580% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 24%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line

In summary, it's great to see that Goodwill E-Health Info has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 41% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Goodwill E-Health Info, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Goodwill E-Health Info isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.