Returns At LifeTech Scientific (HKG:1302) Are On The Way Up

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at LifeTech Scientific (HKG:1302) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for LifeTech Scientific, this is the formula:

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

0.14 = CN¥373m ÷ (CN¥3.2b - CN¥482m) (Based on the trailing twelve months to December 2021).

So, LifeTech Scientific has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% generated by the Medical Equipment industry.

View our latest analysis for LifeTech Scientific

In the above chart we have measured LifeTech Scientific's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for LifeTech Scientific.

The Trend Of ROCE

The trends we've noticed at LifeTech Scientific are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 143%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, LifeTech Scientific has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 29% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

If you want to continue researching LifeTech Scientific, 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.