Qingdao Baheal Medical (SZSE:301015) Looks To Prolong Its Impressive Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Ergo, when we looked at the ROCE trends at Qingdao Baheal Medical (SZSE:301015), we 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 Qingdao Baheal Medical is:

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

0.27 = CN¥938m ÷ (CN¥5.3b - CN¥1.8b) (Based on the trailing twelve months to December 2023).

So, Qingdao Baheal Medical has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 9.5% earned by companies in a similar industry.

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're interested, you can view the analysts predictions in our free analyst report for Qingdao Baheal Medical .

So How Is Qingdao Baheal Medical's ROCE Trending?

It's hard not to be impressed by Qingdao Baheal Medical's returns on capital. Over the past five years, ROCE has remained relatively flat at around 27% and the business has deployed 219% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Qingdao Baheal Medical has done well to reduce current liabilities to 34% of total assets over the last five years. 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.

What We Can Learn From Qingdao Baheal Medical's ROCE

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. Despite the good fundamentals, total returns from the stock have been virtually flat over the last year. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

On a separate note, we've found 1 warning sign for Qingdao Baheal Medical you'll probably want to know about.

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.

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