Return Trends At Shandong Weigao Group Medical Polymer (HKG:1066) Aren't Appealing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 ran our eye over Shandong Weigao Group Medical Polymer's (HKG:1066) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Shandong Weigao Group Medical Polymer:

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

0.11 = CN¥3.0b ÷ (CN¥33b - CN¥5.9b) (Based on the trailing twelve months to December 2022).

Thus, Shandong Weigao Group Medical Polymer has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.6% generated by the Medical Equipment industry.

See our latest analysis for Shandong Weigao Group Medical Polymer

Above you can see how the current ROCE for Shandong Weigao Group Medical Polymer compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Shandong Weigao Group Medical Polymer here for free.

So How Is Shandong Weigao Group Medical Polymer's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 88% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Shandong Weigao Group Medical Polymer has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Shandong Weigao Group Medical Polymer's ROCE

In the end, Shandong Weigao Group Medical Polymer has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 87% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

While Shandong Weigao Group Medical Polymer doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

While Shandong Weigao Group Medical Polymer may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.