Sansure Biotech's (SHSE:688289) Returns On Capital Are Heading Higher

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Sansure Biotech (SHSE:688289) 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. To calculate this metric for Sansure Biotech, this is the formula:

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

0.057 = CN¥427m ÷ (CN¥8.3b - CN¥772m) (Based on the trailing twelve months to September 2023).

Therefore, Sansure Biotech has an ROCE of 5.7%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 8.2%.

View our latest analysis for Sansure Biotech

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sansure Biotech's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Sansure Biotech.

What The Trend Of ROCE Can Tell Us

The fact that Sansure Biotech is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 5.7% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Sansure Biotech is utilizing 1,710% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 9.3%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Sansure Biotech has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

Long story short, we're delighted to see that Sansure Biotech's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 68% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Sansure Biotech does have some risks though, and we've spotted 2 warning signs for Sansure Biotech that you might be interested in.

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.