Returns Are Gaining Momentum At Meilleure Health International Industry Group (HKG:2327)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So when we looked at Meilleure Health International Industry Group (HKG:2327) and its trend of ROCE, we really liked what we saw.

What Is 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)

0.017 = HK$25m ÷ (HK$1.7b - HK$243m) (Based on the trailing twelve months to June 2023).

Therefore, Meilleure Health International Industry Group has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 5.0%.

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 want to delve into the historical earnings, revenue and cash flow of Meilleure Health International Industry Group, check out these free graphs here.

So How Is Meilleure Health International Industry Group's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 1.7%. The amount of capital employed has increased too, by 53%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

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. And since the stock has fallen 49% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One final note, you should learn about the 3 warning signs we've spotted with Meilleure Health International Industry Group (including 2 which don't sit too well with us) .

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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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.