Meilleure Health International Industry Group (HKG:2327) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Meilleure Health International Industry Group (HKG:2327) so let's look a bit deeper.

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)

0.038 = HK$61m ÷ (HK$1.7b - HK$109m) (Based on the trailing twelve months to December 2020).

Therefore, Meilleure Health International Industry Group has an ROCE of 3.8%. Even though it's in line with the industry average of 3.6%, it's still a low return by itself.

Check out our latest analysis for Meilleure Health International Industry Group

In the above chart we have measured Meilleure Health International Industry Group'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 report on analyst forecasts for the company.

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

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 3.8%. The amount of capital employed has increased too, by 403%. So we're very much inspired by what we're seeing at Meilleure Health International Industry Group thanks to its ability to profitably reinvest capital.

The Bottom Line On Meilleure Health International Industry Group's ROCE

To sum it up, Meilleure Health International Industry Group 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 37% to shareholders. So with that in mind, we think the stock deserves further research.

One more thing: We've identified 3 warning signs with Meilleure Health International Industry Group (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

While Meilleure Health International Industry Group 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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