Returns On Capital Signal Tricky Times Ahead For C-MER Medical Holdings (HKG:3309)

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at C-MER Medical Holdings (HKG:3309), it didn't seem to tick all of these boxes.

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 C-MER Medical Holdings:

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

0.058 = HK$139m ÷ (HK$2.8b - HK$362m) (Based on the trailing twelve months to June 2024).

Therefore, C-MER Medical Holdings has an ROCE of 5.8%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 8.2%.

See our latest analysis for C-MER Medical Holdings

In the above chart we have measured C-MER Medical Holdings' 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 analyst report for C-MER Medical Holdings .

So How Is C-MER Medical Holdings' ROCE Trending?

In terms of C-MER Medical Holdings' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 7.7% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On C-MER Medical Holdings' ROCE

Bringing it all together, while we're somewhat encouraged by C-MER Medical Holdings' reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 59% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

C-MER Medical Holdings could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 3309 on our platform quite valuable.

While C-MER Medical Holdings 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.