What Do The Returns At Ma Kuang Healthcare Holding (GTSM:4139) Mean Going Forward?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So on that note, Ma Kuang Healthcare Holding (GTSM:4139) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Ma Kuang Healthcare Holding:

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

0.072 = NT$63m ÷ (NT$1.3b - NT$448m) (Based on the trailing twelve months to September 2020).

Therefore, Ma Kuang Healthcare Holding has an ROCE of 7.2%. In absolute terms, that's a low return but it's around the Healthcare industry average of 8.5%.

View our latest analysis for Ma Kuang Healthcare Holding

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

What The Trend Of ROCE Can Tell Us

Ma Kuang Healthcare Holding has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 7.2%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. 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.

What We Can Learn From Ma Kuang Healthcare Holding's ROCE

To bring it all together, Ma Kuang Healthcare Holding has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 1.9% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing, we've spotted 4 warning signs facing Ma Kuang Healthcare Holding that you might find interesting.

While Ma Kuang Healthcare Holding 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. 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.
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