Shareholders Would Enjoy A Repeat Of APT Medical's (SHSE:688617) Recent Growth In Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in APT Medical's (SHSE:688617) returns on capital, so let's have a 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. To calculate this metric for APT Medical, this is the formula:

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

0.28 = CN¥616m ÷ (CN¥2.7b - CN¥541m) (Based on the trailing twelve months to June 2024).

Thus, APT Medical has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 5.8%.

Check out our latest analysis for APT Medical

In the above chart we have measured APT Medical's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for APT Medical .

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at APT Medical. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 28%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 499%. So we're very much inspired by what we're seeing at APT Medical thanks to its ability to profitably reinvest capital.

The Bottom Line On APT Medical's ROCE

In summary, it's great to see that APT Medical can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 43% return over the last three years. In light of that, we think it's worth looking further into this stock because if APT Medical can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for APT Medical that we think you should be aware of.

APT Medical is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.