There's Been No Shortage Of Growth Recently For Hygeia Healthcare Holdings' (HKG:6078) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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 Hygeia Healthcare Holdings (HKG:6078) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 Hygeia Healthcare Holdings, this is the formula:

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

0.10 = CN¥786m ÷ (CN¥9.0b - CN¥1.5b) (Based on the trailing twelve months to June 2023).

So, Hygeia Healthcare Holdings has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Healthcare industry average of 11%.

See our latest analysis for Hygeia Healthcare Holdings

In the above chart we have measured Hygeia Healthcare Holdings' 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 report for Hygeia Healthcare Holdings.

So How Is Hygeia Healthcare Holdings' ROCE Trending?

Investors would be pleased with what's happening at Hygeia Healthcare Holdings. Over the last five years, returns on capital employed have risen substantially to 10%. The amount of capital employed has increased too, by 408%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Hygeia Healthcare Holdings' ROCE

To sum it up, Hygeia Healthcare Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And given the stock has remained rather flat over the last three years, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing to note, we've identified 1 warning sign with Hygeia Healthcare Holdings and understanding it should be part of your investment process.

While Hygeia Healthcare 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.