Nanjing Vishee Medical Technology (SHSE:688580) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Nanjing Vishee Medical Technology (SHSE:688580) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. Analysts use this formula to calculate it for Nanjing Vishee Medical Technology:

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

0.057 = CN¥93m ÷ (CN¥1.8b - CN¥132m) (Based on the trailing twelve months to September 2024).

Thus, Nanjing Vishee Medical Technology has an ROCE of 5.7%. Even though it's in line with the industry average of 5.9%, it's still a low return by itself.

See our latest analysis for Nanjing Vishee Medical Technology

Above you can see how the current ROCE for Nanjing Vishee Medical Technology 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 Nanjing Vishee Medical Technology .

What Does the ROCE Trend For Nanjing Vishee Medical Technology Tell Us?

On the surface, the trend of ROCE at Nanjing Vishee Medical Technology doesn't inspire confidence. To be more specific, ROCE has fallen from 39% over the last five years. However it looks like Nanjing Vishee Medical Technology might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, Nanjing Vishee Medical Technology has done well to pay down its current liabilities to 7.4% 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 Nanjing Vishee Medical Technology's ROCE

Bringing it all together, while we're somewhat encouraged by Nanjing Vishee Medical Technology's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 47% over the last three years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Nanjing Vishee Medical Technology, we've discovered 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.