Maider Medical Industry Equipment (SHSE:688310) Is Reinvesting At Lower Rates Of Return

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Maider Medical Industry Equipment (SHSE:688310), it didn't seem to tick all of these boxes.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Maider Medical Industry Equipment is:

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

0.14 = CN¥133m ÷ (CN¥1.2b - CN¥245m) (Based on the trailing twelve months to December 2023).

So, Maider Medical Industry Equipment has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.5% generated by the Medical Equipment industry.

See our latest analysis for Maider Medical Industry Equipment

In the above chart we have measured Maider Medical Industry Equipment'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 Maider Medical Industry Equipment .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Maider Medical Industry Equipment, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 14% from 23% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Maider Medical Industry Equipment. Furthermore the stock has climbed 31% over the last three years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 2 warning signs for Maider Medical Industry Equipment that we think you should be aware of.

While Maider Medical Industry Equipment 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.