The Returns On Capital At Meihua International Medical Technologies (NASDAQ:MHUA) Don't Inspire Confidence

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Meihua International Medical Technologies (NASDAQ:MHUA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Meihua International Medical Technologies is:

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

0.077 = US$11m ÷ (US$179m - US$30m) (Based on the trailing twelve months to June 2024).

Therefore, Meihua International Medical Technologies has an ROCE of 7.7%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 10%.

See our latest analysis for Meihua International Medical Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Meihua International Medical Technologies' ROCE against it's prior returns. If you'd like to look at how Meihua International Medical Technologies has performed in the past in other metrics, you can view this free graph of Meihua International Medical Technologies' past earnings, revenue and cash flow.

So How Is Meihua International Medical Technologies' ROCE Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 37% five years ago, while the business's capital employed increased by 188%. That being said, Meihua International Medical Technologies raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. Meihua International Medical Technologies probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

In Conclusion...

To conclude, we've found that Meihua International Medical Technologies is reinvesting in the business, but returns have been falling. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 96% in the last three years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know more about Meihua International Medical Technologies, we've spotted 4 warning signs, and 2 of them can't be ignored.

While Meihua International Medical Technologies 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.