These Return Metrics Don't Make Meinian Onehealth Healthcare Holdings (SZSE:002044) Look Too Strong

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into Meinian Onehealth Healthcare Holdings (SZSE:002044), we weren't too upbeat about how things were going.

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 Meinian Onehealth Healthcare Holdings, this is the formula:

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

0.095 = CN¥1.1b ÷ (CN¥19b - CN¥7.5b) (Based on the trailing twelve months to March 2024).

So, Meinian Onehealth Healthcare Holdings has an ROCE of 9.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.5%.

Check out our latest analysis for Meinian Onehealth Healthcare Holdings

In the above chart we have measured Meinian Onehealth Healthcare Holdings' 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 Meinian Onehealth Healthcare Holdings .

How Are Returns Trending?

There is reason to be cautious about Meinian Onehealth Healthcare Holdings, given the returns are trending downwards. About five years ago, returns on capital were 12%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Meinian Onehealth Healthcare Holdings to turn into a multi-bagger.

On a separate but related note, it's important to know that Meinian Onehealth Healthcare Holdings has a current liabilities to total assets ratio of 40%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Meinian Onehealth Healthcare Holdings' ROCE

In summary, it's unfortunate that Meinian Onehealth Healthcare Holdings is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 66% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you're still interested in Meinian Onehealth Healthcare Holdings it's worth checking out our FREE intrinsic value approximation for 002044 to see if it's trading at an attractive price in other respects.

While Meinian Onehealth Healthcare Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com