What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Jiangsu Yuyue Medical Equipment & Supply's (SZSE:002223) trend of ROCE, we liked what we saw.

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. To calculate this metric for Jiangsu Yuyue Medical Equipment & Supply, this is the formula:

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

0.14 = CN¥1.9b ÷ (CN¥17b - CN¥3.0b) (Based on the trailing twelve months to March 2024).

Thus, Jiangsu Yuyue Medical Equipment & Supply has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Medical Equipment industry.

In the above chart we have measured Jiangsu Yuyue Medical Equipment & Supply's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Jiangsu Yuyue Medical Equipment & Supply for free.

What Does the ROCE Trend For Jiangsu Yuyue Medical Equipment & Supply Tell Us?

While the returns on capital are good, they haven't moved much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 124% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Jiangsu Yuyue Medical Equipment & Supply has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

The main thing to remember is that Jiangsu Yuyue Medical Equipment & Supply has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 76% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know about the risks facing Jiangsu Yuyue Medical Equipment & Supply, we've discovered 2 warning signs that you should be aware of.

While Jiangsu Yuyue Medical Equipment & Supply 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.

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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.