Investors Met With Slowing Returns on Capital At LifeTech Scientific (HKG:1302)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over LifeTech Scientific's (HKG:1302) 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. The formula for this calculation on LifeTech Scientific is:

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

0.12 = CN¥362m ÷ (CN¥3.7b - CN¥585m) (Based on the trailing twelve months to December 2022).

So, LifeTech Scientific has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 9.6% it's much better.

View our latest analysis for LifeTech Scientific

Historical performance is a great place to start when researching a stock so above you can see the gauge for LifeTech Scientific's ROCE against it's prior returns. If you'd like to look at how LifeTech Scientific has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For LifeTech Scientific Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 179% more capital in the last five years, and the returns on that capital have remained stable at 12%. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

In the end, LifeTech Scientific has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 1.9% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if LifeTech Scientific is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

LifeTech Scientific could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.