Be Wary Of Sinopharm Group (HKG:1099) And Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Sinopharm Group (HKG:1099), it didn't seem to tick all of these boxes.

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Return On Capital Employed (ROCE): What Is It?

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 Sinopharm Group is:

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

0.12 = CN¥17b ÷ (CN¥420b - CN¥280b) (Based on the trailing twelve months to June 2025).

Thus, Sinopharm Group has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 6.7% it's much better.

View our latest analysis for Sinopharm Group

In the above chart we have measured Sinopharm Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Sinopharm Group for free.

What Does the ROCE Trend For Sinopharm Group Tell Us?

In terms of Sinopharm Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 12% from 18% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Another thing to note, Sinopharm Group has a high ratio of current liabilities to total assets of 67%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Sinopharm Group's ROCE

To conclude, we've found that Sinopharm Group is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 34% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to continue researching Sinopharm Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.