Will Alibaba Health Information Technology's (HKG:241) Growth In ROCE Persist?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Alibaba Health Information Technology's (HKG:241) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its 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%. Ultimately, that's a low return and it under-performs the Healthcare Services industry average of 9.9%.

Check out our latest analysis for Alibaba Health Information Technology

In the above chart we have measured Alibaba Health Information Technology's prior ROCE against its prior performance, but the future is arguably more important. 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 Alibaba Health Information Technology Tell Us?

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. And unsurprisingly, like most companies trying to break into the black, Alibaba Health Information Technology is utilizing 1,088% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Alibaba Health Information Technology's ROCE

To the delight of most shareholders, Alibaba Health Information Technology has now broken into profitability. Since the stock has returned a staggering 288% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Alibaba Health Information Technology, we've discovered 3 warning signs that you should be aware of.

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