Jafron BiomedicalLtd (SZSE:300529) Is Reinvesting At Lower Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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 while Jafron BiomedicalLtd (SZSE:300529) has a high ROCE right now, lets see what we can decipher from how returns are changing.

Understanding 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. Analysts use this formula to calculate it for Jafron BiomedicalLtd:

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

0.20 = CN¥934m ÷ (CN¥5.6b - CN¥873m) (Based on the trailing twelve months to September 2024).

Therefore, Jafron BiomedicalLtd has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 5.9%.

View our latest analysis for Jafron BiomedicalLtd

In the above chart we have measured Jafron BiomedicalLtd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Jafron BiomedicalLtd for free.

What Can We Tell From Jafron BiomedicalLtd's ROCE Trend?

In terms of Jafron BiomedicalLtd's historical ROCE movements, the trend isn't fantastic. Historically returns on capital were even higher at 27%, but they have dropped over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Jafron BiomedicalLtd. And there could be an opportunity here if other metrics look good too, because the stock has declined 15% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

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

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.