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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Shanghai MicroPort Endovascular MedTech (SHSE:688016) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Shanghai MicroPort Endovascular MedTech:

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

0.14 = CN¥596m ÷ (CN¥4.5b - CN¥361m) (Based on the trailing twelve months to March 2024).

Therefore, Shanghai MicroPort Endovascular MedTech has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 6.4% it's much better.

Above you can see how the current ROCE for Shanghai MicroPort Endovascular MedTech compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shanghai MicroPort Endovascular MedTech .

What Does the ROCE Trend For Shanghai MicroPort Endovascular MedTech Tell Us?

We weren't thrilled with the trend because Shanghai MicroPort Endovascular MedTech's ROCE has reduced by 66% over the last five years, while the business employed 1,488% more capital. That being said, Shanghai MicroPort Endovascular MedTech raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Shanghai MicroPort Endovascular MedTech's earnings and if they change as a result from the capital raise.

In Conclusion...

While returns have fallen for Shanghai MicroPort Endovascular MedTech in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 60% in the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to continue researching Shanghai MicroPort Endovascular MedTech, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Shanghai MicroPort Endovascular MedTech may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com