Slowing Rates Of Return At Kingworld Medicines Group (HKG:1110) Leave Little Room For Excitement

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Kingworld Medicines Group (HKG:1110) and its ROCE trend, we weren't exactly thrilled.

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 Kingworld Medicines Group:

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

0.11 = CN¥80m ÷ (CN¥1.3b - CN¥542m) (Based on the trailing twelve months to December 2022).

Therefore, Kingworld Medicines Group has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 12% generated by the Healthcare industry.

Check out our latest analysis for Kingworld Medicines Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Kingworld Medicines Group's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Kingworld Medicines Group's ROCE Trend?

Things have been pretty stable at Kingworld Medicines Group, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Kingworld Medicines Group doesn't end up being a multi-bagger in a few years time.

On a side note, Kingworld Medicines Group's current liabilities are still rather high at 43% of total assets. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Kingworld Medicines Group's ROCE

We can conclude that in regards to Kingworld Medicines Group's returns on capital employed and the trends, there isn't much change to report on. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know more about Kingworld Medicines Group, we've spotted 5 warning signs, and 1 of them can't be ignored.

While Kingworld Medicines Group 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.