Returns At Doctorglasses ChainLtd (SZSE:300622) Are On The Way Up

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Doctorglasses ChainLtd (SZSE:300622) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Doctorglasses ChainLtd is:

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

0.15 = CN¥136m ÷ (CN¥1.3b - CN¥390m) (Based on the trailing twelve months to September 2024).

So, Doctorglasses ChainLtd has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 5.9% generated by the Medical Equipment industry.

View our latest analysis for Doctorglasses ChainLtd

Above you can see how the current ROCE for Doctorglasses ChainLtd 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 Doctorglasses ChainLtd .

How Are Returns Trending?

Doctorglasses ChainLtd is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. 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 70%. So we're very much inspired by what we're seeing at Doctorglasses ChainLtd thanks to its ability to profitably reinvest capital.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 30% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

What We Can Learn From Doctorglasses ChainLtd'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 Doctorglasses ChainLtd has. Since the stock has returned a staggering 404% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Doctorglasses ChainLtd can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Doctorglasses ChainLtd we've found 2 warning signs (1 can't be ignored!) that you should be aware of before investing here.

While Doctorglasses ChainLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.