Returns Are Gaining Momentum At Jiangxi Sanxin MedtecLtd (SZSE:300453)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Jiangxi Sanxin MedtecLtd (SZSE:300453) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Jiangxi Sanxin MedtecLtd:

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

0.15 = CN¥232m ÷ (CN¥2.0b - CN¥489m) (Based on the trailing twelve months to June 2024).

Thus, Jiangxi Sanxin MedtecLtd has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 5.8% it's much better.

View our latest analysis for Jiangxi Sanxin MedtecLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jiangxi Sanxin MedtecLtd's ROCE against it's prior returns. If you're interested in investigating Jiangxi Sanxin MedtecLtd's past further, check out this free graph covering Jiangxi Sanxin MedtecLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Jiangxi Sanxin MedtecLtd Tell Us?

The trends we've noticed at Jiangxi Sanxin MedtecLtd are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 137% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 24%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Jiangxi Sanxin MedtecLtd's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Jiangxi Sanxin MedtecLtd has. And a remarkable 107% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

One more thing to note, we've identified 1 warning sign with Jiangxi Sanxin MedtecLtd and understanding it should be part of your investment process.

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.