Medlive Technology (HKG:2192) Is Reinvesting At Lower Rates Of Return

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Medlive Technology (HKG:2192) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. To calculate this metric for Medlive Technology, this is the formula:

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

0.015 = CN¥72m ÷ (CN¥4.9b - CN¥216m) (Based on the trailing twelve months to June 2023).

So, Medlive Technology has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Healthcare Services industry average of 11%.

View our latest analysis for Medlive Technology

In the above chart we have measured Medlive Technology'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 analyst report for Medlive Technology .

What Can We Tell From Medlive Technology's ROCE Trend?

In terms of Medlive Technology's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 49% over the last four 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.

On a side note, Medlive Technology has done well to pay down its current liabilities to 4.4% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On Medlive Technology's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Medlive Technology. These growth trends haven't led to growth returns though, since the stock has fallen 31% over the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Medlive Technology does have some risks though, and we've spotted 1 warning sign for Medlive Technology that you might be interested in.

While Medlive Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.