Under The Bonnet, Vincent Medical Holdings' (HKG:1612) Returns Look Impressive

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. And in light of that, the trends we're seeing at Vincent Medical Holdings' (HKG:1612) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Vincent Medical Holdings:

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

0.38 = HK$228m ÷ (HK$881m - HK$284m) (Based on the trailing twelve months to June 2021).

So, Vincent Medical Holdings has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 10%.

Check out our latest analysis for Vincent Medical Holdings

In the above chart we have measured Vincent Medical Holdings' 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 Vincent Medical Holdings.

What The Trend Of ROCE Can Tell Us

Vincent Medical Holdings is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 38%. The amount of capital employed has increased too, by 115%. So we're very much inspired by what we're seeing at Vincent Medical Holdings thanks to its ability to profitably reinvest capital.

Our Take On Vincent Medical Holdings' ROCE

To sum it up, Vincent Medical Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Given the stock has declined 11% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 4 warning signs we've spotted with Vincent Medical Holdings (including 1 which is significant) .

Vincent Medical Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.