Here's What's Concerning About Jiangsu Apon Medical Technology's (SZSE:300753) Returns On Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within Jiangsu Apon Medical Technology (SZSE:300753), we weren't too hopeful.

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 Jiangsu Apon Medical Technology:

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

0.001 = CN¥764k ÷ (CN¥841m - CN¥112m) (Based on the trailing twelve months to September 2024).

Thus, Jiangsu Apon Medical Technology has an ROCE of 0.1%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 5.9%.

See our latest analysis for Jiangsu Apon Medical Technology

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Jiangsu Apon Medical Technology has performed in the past in other metrics, you can view this free graph of Jiangsu Apon Medical Technology's past earnings, revenue and cash flow.

What Does the ROCE Trend For Jiangsu Apon Medical Technology Tell Us?

In terms of Jiangsu Apon Medical Technology's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 15%, 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Jiangsu Apon Medical Technology becoming one if things continue as they have.

The Key Takeaway

In summary, it's unfortunate that Jiangsu Apon Medical Technology is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 27% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Jiangsu Apon Medical Technology (of which 1 is a bit unpleasant!) that you should know about.

While Jiangsu Apon Medical Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.