What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So when we looked at Medprin Regenerative Medical Technologies (SZSE:301033) and its trend of ROCE, we really liked what we saw.

Understanding 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 Medprin Regenerative Medical Technologies:

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

0.096 = CN¥65m ÷ (CN¥710m - CN¥35m) (Based on the trailing twelve months to June 2024).

Thus, Medprin Regenerative Medical Technologies has an ROCE of 9.6%. On its own that's a low return, but compared to the average of 5.8% generated by the Medical Equipment industry, it's much better.

In the above chart we have measured Medprin Regenerative Medical Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Medprin Regenerative Medical Technologies .

So How Is Medprin Regenerative Medical Technologies' ROCE Trending?

The fact that Medprin Regenerative Medical Technologies is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 9.6% on its capital. Not only that, but the company is utilizing 130% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

In summary, it's great to see that Medprin Regenerative Medical Technologies has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 17% in the last three years. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing to note, we've identified 1 warning sign with Medprin Regenerative Medical Technologies and understanding this should be part of your investment process.

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.