Investors Shouldn't Overlook The Favourable Returns On Capital At Perfect Medical Health Management (HKG:1830)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Ergo, when we looked at the ROCE trends at Perfect Medical Health Management (HKG:1830), we liked what we saw.

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. The formula for this calculation on Perfect Medical Health Management is:

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

0.33 = HK$303m ÷ (HK$1.5b - HK$559m) (Based on the trailing twelve months to March 2021).

So, Perfect Medical Health Management has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Consumer Services industry average of 7.8%.

View our latest analysis for Perfect Medical Health Management

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Perfect Medical Health Management has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We'd be pretty happy with returns on capital like Perfect Medical Health Management. The company has consistently earned 33% for the last five years, and the capital employed within the business has risen 89% in that time. Now considering ROCE is an attractive 33%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Perfect Medical Health Management can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In summary, we're delighted to see that Perfect Medical Health Management has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And long term investors would be thrilled with the 1,236% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing, we've spotted 2 warning signs facing Perfect Medical Health Management that you might find interesting.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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