China Isotope & Radiation (HKG:1763) Will Want To Turn Around Its Return Trends

There are a few key trends to look for if we want to identify the next multi-bagger. 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. However, after briefly looking over the numbers, we don't think China Isotope & Radiation (HKG:1763) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for China Isotope & Radiation:

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

0.12 = CN¥788m ÷ (CN¥11b - CN¥4.2b) (Based on the trailing twelve months to June 2022).

Thus, China Isotope & Radiation has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Medical Equipment industry.

View our latest analysis for China Isotope & Radiation

Above you can see how the current ROCE for China Isotope & Radiation compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For China Isotope & Radiation Tell Us?

On the surface, the trend of ROCE at China Isotope & Radiation doesn't inspire confidence. To be more specific, ROCE has fallen from 23% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On China Isotope & Radiation's ROCE

While returns have fallen for China Isotope & Radiation in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 35% in the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Like most companies, China Isotope & Radiation does come with some risks, and we've found 1 warning sign that you should be aware of.

While China Isotope & Radiation 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.