Shandong Weigao Group Medical Polymer (HKG:1066) Shareholders Will Want The ROCE Trajectory To Continue

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Shandong Weigao Group Medical Polymer (HKG:1066) and its trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for Shandong Weigao Group Medical Polymer, this is the formula:

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

0.11 = CN¥2.6b ÷ (CN¥30b - CN¥5.6b) (Based on the trailing twelve months to June 2021).

So, Shandong Weigao Group Medical Polymer has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% 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 to see what analysts are forecasting going forward, you should check out our free report for Shandong Weigao Group Medical Polymer.

What Does the ROCE Trend For Shandong Weigao Group Medical Polymer Tell Us?

Investors would be pleased with what's happening at Shandong Weigao Group Medical Polymer. Over the last five years, returns on capital employed have risen substantially to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 95% more capital is being employed now too. So we're very much inspired by what we're seeing at Shandong Weigao Group Medical Polymer thanks to its ability to profitably reinvest capital.

What We Can Learn From Shandong Weigao Group Medical Polymer's ROCE

All in all, it's terrific to see that Shandong Weigao Group Medical Polymer is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Shandong Weigao Group Medical Polymer can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Shandong Weigao Group Medical Polymer and understanding this should be part of your investment process.

While Shandong Weigao Group Medical Polymer 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.
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