The Return Trends At Jiangsu Yuyue Medical Equipment & Supply (SZSE:002223) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at Jiangsu Yuyue Medical Equipment & Supply (SZSE:002223) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Jiangsu Yuyue Medical Equipment & Supply:

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

0.17 = CN¥2.2b ÷ (CN¥16b - CN¥2.7b) (Based on the trailing twelve months to September 2023).

Thus, Jiangsu Yuyue Medical Equipment & Supply has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 8.2% it's much better.

See our latest analysis for Jiangsu Yuyue Medical Equipment & Supply

Above you can see how the current ROCE for Jiangsu Yuyue Medical Equipment & Supply compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Jiangsu Yuyue Medical Equipment & Supply .

What Can We Tell From Jiangsu Yuyue Medical Equipment & Supply's ROCE Trend?

We like the trends that we're seeing from Jiangsu Yuyue Medical Equipment & Supply. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. 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 130%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Jiangsu Yuyue Medical Equipment & Supply's ROCE

In summary, it's great to see that Jiangsu Yuyue Medical Equipment & Supply 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. Since the stock has returned a solid 68% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 3 warning signs for Jiangsu Yuyue Medical Equipment & Supply (1 shouldn't be ignored) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.