Nanjing Sinolife United's (HKG:3332) Returns On Capital Are Heading Higher

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Nanjing Sinolife United's (HKG:3332) returns on capital, so let's have a look.

We've discovered 2 warning signs about Nanjing Sinolife United. View them for free.

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 Nanjing Sinolife United is:

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

0.086 = CN¥38m ÷ (CN¥506m - CN¥69m) (Based on the trailing twelve months to December 2024).

Thus, Nanjing Sinolife United has an ROCE of 8.6%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 13%.

Check out our latest analysis for Nanjing Sinolife United

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nanjing Sinolife United's ROCE against it's prior returns. If you're interested in investigating Nanjing Sinolife United's past further, check out this free graph covering Nanjing Sinolife United's past earnings, revenue and cash flow.

What Does the ROCE Trend For Nanjing Sinolife United Tell Us?

Shareholders will be relieved that Nanjing Sinolife United has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 8.6% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line

In summary, we're delighted to see that Nanjing Sinolife United has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Nanjing Sinolife United does have some risks though, and we've spotted 2 warning signs for Nanjing Sinolife United that you might be interested in.

While Nanjing Sinolife United 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.