If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Liaoning He Eye Hospital Group (SZSE:301103) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is Return On Capital Employed (ROCE)?
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. Analysts use this formula to calculate it for Liaoning He Eye Hospital Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.04 = CN¥96m ÷ (CN¥2.6b - CN¥202m) (Based on the trailing twelve months to September 2023).
So, Liaoning He Eye Hospital Group has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 11%.
See our latest analysis for Liaoning He Eye Hospital Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for Liaoning He Eye Hospital Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Liaoning He Eye Hospital Group, check out these free graphs here.
So How Is Liaoning He Eye Hospital Group's ROCE Trending?
When we looked at the ROCE trend at Liaoning He Eye Hospital Group, we didn't gain much confidence. Around five years ago the returns on capital were 9.9%, but since then they've fallen to 4.0%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
The Bottom Line On Liaoning He Eye Hospital Group's ROCE
While returns have fallen for Liaoning He Eye Hospital Group in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These growth trends haven't led to growth returns though, since the stock has fallen 30% over the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
On a final note, we've found 2 warning signs for Liaoning He Eye Hospital Group that we think you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.