Here's What To Make Of Shandong Weigao Group Medical Polymer's (HKG:1066) Decelerating Rates Of Return

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Although, when we looked at Shandong Weigao Group Medical Polymer (HKG:1066), it didn't seem to tick all of these boxes.

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 Shandong Weigao Group Medical Polymer is:

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

0.084 = CN¥2.2b ÷ (CN¥34b - CN¥7.6b) (Based on the trailing twelve months to December 2023).

So, Shandong Weigao Group Medical Polymer has an ROCE of 8.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.4%.

See our latest analysis for Shandong Weigao Group Medical Polymer

In the above chart we have measured Shandong Weigao Group Medical Polymer's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shandong Weigao Group Medical Polymer .

What Can We Tell From Shandong Weigao Group Medical Polymer's ROCE Trend?

The returns on capital haven't changed much for Shandong Weigao Group Medical Polymer in recent years. The company has consistently earned 8.4% for the last five years, and the capital employed within the business has risen 26% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

In conclusion, Shandong Weigao Group Medical Polymer has been investing more capital into the business, but returns on that capital haven't increased. And in the last five years, the stock has given away 39% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we've found 1 warning sign for Shandong Weigao Group Medical Polymer that we think you should be aware of.

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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.

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