Investors Will Want Meilleure Health International Industry Group's (HKG:2327) Growth In ROCE To Persist

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Meilleure Health International Industry Group (HKG:2327) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Meilleure Health International Industry Group is:

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

0.035 = HK$57m ÷ (HK$1.7b - HK$111m) (Based on the trailing twelve months to December 2021).

So, Meilleure Health International Industry Group has an ROCE of 3.5%. Even though it's in line with the industry average of 4.1%, it's still a low return by itself.

See our latest analysis for Meilleure Health International Industry Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Meilleure Health International Industry Group's ROCE against it's prior returns. If you're interested in investigating Meilleure Health International Industry Group's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Meilleure Health International Industry Group Tell Us?

We're delighted to see that Meilleure Health International Industry Group is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 3.5% on its capital. Not only that, but the company is utilizing 127% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Meilleure Health International Industry Group's ROCE

To the delight of most shareholders, Meilleure Health International Industry Group has now broken into profitability. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Meilleure Health International Industry Group we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.