Beauty Farm Medical and Health Industry's (HKG:2373) Returns On Capital Not Reflecting Well On The Business

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Beauty Farm Medical and Health Industry (HKG:2373), they do have a high ROCE, but we weren't exactly elated from how returns are trending.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Beauty Farm Medical and Health Industry is:

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

0.24 = CN¥369m ÷ (CN¥4.3b - CN¥2.8b) (Based on the trailing twelve months to June 2025).

Therefore, Beauty Farm Medical and Health Industry has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 9.6% earned by companies in a similar industry.

View our latest analysis for Beauty Farm Medical and Health Industry

Above you can see how the current ROCE for Beauty Farm Medical and Health Industry compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Beauty Farm Medical and Health Industry .

What Can We Tell From Beauty Farm Medical and Health Industry's ROCE Trend?

In terms of Beauty Farm Medical and Health Industry's historical ROCE movements, the trend isn't fantastic. To be more specific, while the ROCE is still high, it's fallen from 40% where it was five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Beauty Farm Medical and Health Industry has done well to pay down its current liabilities to 64% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE. Keep in mind 64% is still pretty high, so those risks are still somewhat prevalent.

What We Can Learn From Beauty Farm Medical and Health Industry's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Beauty Farm Medical and Health Industry. And long term investors must be optimistic going forward because the stock has returned a huge 104% to shareholders in the last year. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Beauty Farm Medical and Health Industry could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 2373 on our platform quite valuable.

Beauty Farm Medical and Health Industry is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.