Be Wary Of LEPU ScienTech Medical Technology (Shanghai) (HKG:2291) And Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Although, when we looked at LEPU ScienTech Medical Technology (Shanghai) (HKG:2291), it didn't seem to tick all of these boxes.

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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. The formula for this calculation on LEPU ScienTech Medical Technology (Shanghai) is:

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

0.16 = CN¥308m ÷ (CN¥2.3b - CN¥304m) (Based on the trailing twelve months to June 2025).

Therefore, LEPU ScienTech Medical Technology (Shanghai) has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 7.9% generated by the Medical Equipment industry.

View our latest analysis for LEPU ScienTech Medical Technology (Shanghai)

Above you can see how the current ROCE for LEPU ScienTech Medical Technology (Shanghai) compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for LEPU ScienTech Medical Technology (Shanghai) .

How Are Returns Trending?

In terms of LEPU ScienTech Medical Technology (Shanghai)'s historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 27% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a related note, LEPU ScienTech Medical Technology (Shanghai) has decreased its current liabilities to 13% of total assets. So we could link some of this to the decrease in ROCE. 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.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that LEPU ScienTech Medical Technology (Shanghai) is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 37% over the last three years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

LEPU ScienTech Medical Technology (Shanghai) does have some risks though, and we've spotted 1 warning sign for LEPU ScienTech Medical Technology (Shanghai) that you might be interested in.

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.