Shenzhen Mindray Bio-Medical Electronics (SZSE:300760) Looks To Prolong Its Impressive Returns

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Shenzhen Mindray Bio-Medical Electronics (SZSE:300760), we liked what we saw.

What Is 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. Analysts use this formula to calculate it for Shenzhen Mindray Bio-Medical Electronics:

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

0.31 = CN¥12b ÷ (CN¥50b - CN¥10b) (Based on the trailing twelve months to September 2023).

So, Shenzhen Mindray Bio-Medical Electronics has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 8.8%.

See our latest analysis for Shenzhen Mindray Bio-Medical Electronics

Above you can see how the current ROCE for Shenzhen Mindray Bio-Medical Electronics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shenzhen Mindray Bio-Medical Electronics .

What Does the ROCE Trend For Shenzhen Mindray Bio-Medical Electronics Tell Us?

We'd be pretty happy with returns on capital like Shenzhen Mindray Bio-Medical Electronics. Over the past five years, ROCE has remained relatively flat at around 31% and the business has deployed 282% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Shenzhen Mindray Bio-Medical Electronics can keep this up, we'd be very optimistic about its future.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 20% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

Our Take On Shenzhen Mindray Bio-Medical Electronics' ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And long term investors would be thrilled with the 129% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching Shenzhen Mindray Bio-Medical Electronics, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.