The Return Trends At Qianhai Health Holdings (HKG:911) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Speaking of which, we noticed some great changes in Qianhai Health Holdings' (HKG:911) returns on capital, so let's have a look.

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Return On Capital Employed (ROCE): What Is It?

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 Qianhai Health Holdings:

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

0.036 = HK$14m ÷ (HK$407m - HK$21m) (Based on the trailing twelve months to December 2024).

So, Qianhai Health Holdings has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 6.5%.

Check out our latest analysis for Qianhai Health Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Qianhai Health Holdings has performed in the past in other metrics, you can view this free graph of Qianhai Health Holdings' past earnings, revenue and cash flow.

How Are Returns Trending?

While the ROCE is still rather low for Qianhai Health Holdings, we're glad to see it heading in the right direction. The data shows that returns on capital have increased by 111% over the trailing five years. The company is now earning HK$0.04 per dollar of capital employed. In regards to capital employed, Qianhai Health Holdings appears to been achieving more with less, since the business is using 42% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 5.2%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line

In summary, it's great to see that Qianhai Health Holdings has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has dived 81% over the last five years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

On a final note, we found 2 warning signs for Qianhai Health Holdings (1 makes us a bit uncomfortable) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.