We Like These Underlying Return On Capital Trends At Boai NKY Medical Holdings (SZSE:300109)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Boai NKY Medical Holdings (SZSE:300109) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

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 Boai NKY Medical Holdings, this is the formula:

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

0.15 = CN¥561m ÷ (CN¥4.1b - CN¥396m) (Based on the trailing twelve months to March 2024).

Therefore, Boai NKY Medical Holdings has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Chemicals industry.

Check out our latest analysis for Boai NKY Medical Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Boai NKY Medical Holdings' ROCE against it's prior returns. If you'd like to look at how Boai NKY Medical Holdings has performed in the past in other metrics, you can view this free graph of Boai NKY Medical Holdings' past earnings, revenue and cash flow.

What Can We Tell From Boai NKY Medical Holdings' ROCE Trend?

Investors would be pleased with what's happening at Boai NKY Medical Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The amount of capital employed has increased too, by 173%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 9.6%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Boai NKY Medical Holdings' ROCE

To sum it up, Boai NKY Medical Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 34% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Like most companies, Boai NKY Medical Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

While Boai NKY Medical Holdings 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.