Many Would Be Envious Of Qingdao Baheal Medical's (SZSE:301015) Excellent Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at Qingdao Baheal Medical (SZSE:301015), we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Qingdao Baheal Medical, this is the formula:

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

0.25 = CN¥858m ÷ (CN¥5.4b - CN¥1.9b) (Based on the trailing twelve months to September 2023).

Therefore, Qingdao Baheal Medical has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 8.7%.

See our latest analysis for Qingdao Baheal Medical

In the above chart we have measured Qingdao Baheal Medical's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Qingdao Baheal Medical .

So How Is Qingdao Baheal Medical's ROCE Trending?

We'd be pretty happy with returns on capital like Qingdao Baheal Medical. The company has employed 215% more capital in the last five years, and the returns on that capital have remained stable at 25%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 36% 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.

The Key Takeaway

In summary, we're delighted to see that Qingdao Baheal Medical has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And given the stock has only risen 5.9% over the last three years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you'd like to know about the risks facing Qingdao Baheal Medical, we've discovered 2 warning signs that you should be aware of.

Qingdao Baheal Medical is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.