Some Investors May Be Worried About Shandong Weigao Group Medical Polymer's (HKG:1066) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Shandong Weigao Group Medical Polymer (HKG:1066) and its ROCE trend, we weren't exactly thrilled.

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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. 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)

0.071 = CN¥2.2b ÷ (CN¥36b - CN¥5.6b) (Based on the trailing twelve months to June 2025).

So, Shandong Weigao Group Medical Polymer has an ROCE of 7.1%. Even though it's in line with the industry average of 7.4%, it's still a low return by itself.

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're interested, you can view the analysts predictions in our free analyst report for Shandong Weigao Group Medical Polymer .

The Trend Of ROCE

On the surface, the trend of ROCE at Shandong Weigao Group Medical Polymer doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.1% from 11% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Shandong Weigao Group Medical Polymer's ROCE

In summary, Shandong Weigao Group Medical Polymer is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last five years, the stock has given away 57% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Shandong Weigao Group Medical Polymer has the makings of a multi-bagger.

One more thing to note, we've identified 1 warning sign with Shandong Weigao Group Medical Polymer and understanding it 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.