Under The Bonnet, China Biotech Services Holdings' (HKG:8037) Returns Look Impressive

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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at China Biotech Services Holdings' (HKG:8037) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on China Biotech Services Holdings is:

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

0.41 = HK$259m ÷ (HK$904m - HK$272m) (Based on the trailing twelve months to March 2021).

Thus, China Biotech Services Holdings has an ROCE of 41%. That's a fantastic return and not only that, it outpaces the average of 9.4% earned by companies in a similar industry.

View our latest analysis for China Biotech Services Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for China Biotech Services Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of China Biotech Services Holdings, check out these free graphs here.

The Trend Of ROCE

China Biotech Services Holdings has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 41% which is a sight for sore eyes. Not only that, but the company is utilizing 83% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

Long story short, we're delighted to see that China Biotech Services Holdings' reinvestment activities have paid off and the company is now profitable. And a remarkable 593% total return over the last five years tells us that investors are expecting more good things to come in the future. 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 China Biotech Services Holdings, we've discovered 2 warning signs that you should be aware of.

China Biotech Services Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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