If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 IVD Medical Holding's (HKG:1931) returns on capital, so let's have a look.
Understanding 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. The formula for this calculation on IVD Medical Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = CN¥395m ÷ (CN¥5.3b - CN¥1.7b) (Based on the trailing twelve months to June 2024).
Therefore, IVD Medical Holding has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 8.5% it's much better.
Check out our latest analysis for IVD Medical Holding
Historical performance is a great place to start when researching a stock so above you can see the gauge for IVD Medical Holding's ROCE against it's prior returns. If you'd like to look at how IVD Medical Holding has performed in the past in other metrics, you can view this free graph of IVD Medical Holding's past earnings, revenue and cash flow.
What Does the ROCE Trend For IVD Medical Holding Tell Us?
Investors would be pleased with what's happening at IVD Medical Holding. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 63%. So we're very much inspired by what we're seeing at IVD Medical Holding thanks to its ability to profitably reinvest capital.
In Conclusion...
All in all, it's terrific to see that IVD Medical Holding is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 39% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.
On a separate note, we've found 2 warning signs for IVD Medical Holding you'll probably want to know about.
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.