Kangji Medical Holdings (HKG:9997) reinvests at lower rates of return

If you’re looking for a multi-bagger, there are a few things to watch out for. First, we would like to identify a growth come back on capital employed (ROCE) and at the same time, a base capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. Although, when we looked Kangji Medical Holdings (HKG:9997), it didn’t seem to tick all those boxes.

Return on capital employed (ROCE): what is it?

If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. The formula for this calculation on Kangji Medical Holdings is:

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

0.13 = CN¥418m ÷ (CN¥3.4b – CN¥117m) (Based on the last twelve months to December 2021).

Thereby, Kangji Medical Holdings has a ROCE of 13%. In absolute terms, that’s a decent return, but compared to the medical equipment industry average of 10%, it’s much better.

Check out our latest analysis for Kangji Medical Holdings

SEHK: 9997 Return on capital employed June 12, 2022

Above, you can see how Kangji Medical Holdings’ current ROCE compares to its past returns on capital, but you can’t say anything about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.

So, what is the ROCE trend of Kangji Medical Holdings?

On the surface, the ROCE trend at Kangji Medical Holdings does not inspire confidence. About four years ago the return on capital was 59%, but since then it has fallen to 13%. Although, given that revenue and the amount of assets used in the business have increased, it could suggest that the business is investing in growth and that the additional capital has resulted in a short-term reduction in ROCE. And if the capital increase generates additional returns, the company, and therefore the shareholders, will benefit in the long term.

Kangji Medical Holdings ROCE Basics

While yields have fallen for Kangji Medical Holdings lately, we are encouraged to see that sales are increasing and the company is reinvesting in its operations. However, despite the promising trends, the stock has fallen 43% in the past year, so there could be an opportunity here for shrewd investors. So we think it would be worth taking a closer look at this stock as the trends look encouraging.

On a separate note, we found 1 warning sign for Kangji Medical Holdings you will probably want to know more.

If you want to look for strong companies with excellent earnings, check out this free list of companies with strong balance sheets and impressive returns on equity.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

About Meredith Campagna

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