Maider Medical Industry Equipment's (SHSE:688310) Returns On Capital Not Reflecting Well On The Business

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Maider Medical Industry Equipment (SHSE:688310) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Maider Medical Industry Equipment:

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

0.069 = CN¥63m ÷ (CN¥1.0b - CN¥142m) (Based on the trailing twelve months to June 2024).

Therefore, Maider Medical Industry Equipment has an ROCE of 6.9%. In absolute terms, that's a low return but it's around the Medical Equipment industry average of 5.8%.

View our latest analysis for Maider Medical Industry Equipment

Above you can see how the current ROCE for Maider Medical Industry Equipment 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 Maider Medical Industry Equipment .

What Can We Tell From Maider Medical Industry Equipment's ROCE Trend?

On the surface, the trend of ROCE at Maider Medical Industry Equipment doesn't inspire confidence. Over the last five years, returns on capital have decreased to 6.9% from 31% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, Maider Medical Industry Equipment has done well to pay down its current liabilities to 13% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From Maider Medical Industry Equipment's ROCE

In summary, Maider Medical Industry Equipment is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 35% in the last three years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you want to know some of the risks facing Maider Medical Industry Equipment we've found 3 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

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.