The Return Trends At Alibaba Health Information Technology (HKG:241) Look Promising

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Alibaba Health Information Technology (HKG:241) and its trend of ROCE, we really liked what we saw.

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 Alibaba Health Information Technology:

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

0.011 = CN¥163m ÷ (CN¥17b - CN¥2.7b) (Based on the trailing twelve months to September 2020).

Therefore, Alibaba Health Information Technology has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Healthcare Services industry average of 9.2%.

View our latest analysis for Alibaba Health Information Technology

Above you can see how the current ROCE for Alibaba Health Information Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Alibaba Health Information Technology here for free.

So How Is Alibaba Health Information Technology's ROCE Trending?

We're delighted to see that Alibaba Health Information Technology is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.1% on its capital. In addition to that, Alibaba Health Information Technology is employing 1,088% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Alibaba Health Information Technology's ROCE

Overall, Alibaba Health Information Technology gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 424% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 4 warning signs with Alibaba Health Information Technology and understanding them should be part of your investment process.

While Alibaba Health Information Technology 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. 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.
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