Returns At OrbusNeich Medical Group Holdings (HKG:6929) Appear To Be Weighed Down

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at OrbusNeich Medical Group Holdings (HKG:6929) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for OrbusNeich Medical Group Holdings:

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

0.097 = US$34m ÷ (US$373m - US$22m) (Based on the trailing twelve months to June 2023).

Thus, OrbusNeich Medical Group Holdings has an ROCE of 9.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.9%.

See our latest analysis for OrbusNeich Medical Group Holdings

Above you can see how the current ROCE for OrbusNeich Medical Group Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for OrbusNeich Medical Group Holdings in recent years. Over the past two years, ROCE has remained relatively flat at around 9.7% and the business has deployed 135% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

One more thing to note, even though ROCE has remained relatively flat over the last two years, the reduction in current liabilities to 6.0% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On OrbusNeich Medical Group Holdings' ROCE

In conclusion, OrbusNeich Medical Group Holdings has been investing more capital into the business, but returns on that capital haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 40% in the last year. 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.

If you're still interested in OrbusNeich Medical Group Holdings it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While OrbusNeich Medical Group Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.