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If we want to find a stock that will appreciate in value over the long term, what underlying trends should we look for?Ideally, businesses will exhibit two trends: First, growing return First is capital employed (ROCE), second is growing capital quantity capital employed. This shows us that it is a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns.So when we look at Alibaba Health Information Technology (HKG:241) and its ROCE trend, we really like what we see.
Return on Capital Employed (ROCE): What is it?
For those who aren’t sure what ROCE is, it measures the pre-tax profit a company can generate from the capital employed in its business. To calculate this indicator of Alibaba Health Information Technology, the formula is as follows:
Return on capital employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.015 = RMB 247 million ÷ (RMB 21b – RMB 5.2b) (Based on trailing 12 months to September 2023).
so, Alibaba Health Information Technology’s ROCE is 1.5%. In absolute terms, the return rate is low and lower than the average return rate of 8.5% in the consumer retail industry.
Check out our latest analysis for Alibaba Health Information Technology
Above you can see how Alibaba Health Information Technology’s current ROCE compares to its previous return on capital, but you can only tell so much from the past.If you’d like, you can check out analyst forecasts for Alibaba Health Information Technology free.
What can we see from the ROCE trend of Alibaba Health Information Technology?
Alibaba Health Information Technology has recently become profitable, so their previous investments appear to be paying off. Shareholders will no doubt be pleased, as the business was loss-making five years ago but now has a return on capital of 1.5%. Unsurprisingly, like most companies trying to turn a profit, Alibaba Health Information Technology’s capital utilization rate is 514% higher than five years ago. This may indicate that there are many opportunities to invest internally at higher rates, a common characteristic among multiple investors.
Relatedly, the company’s current liabilities to total assets ratio has dropped to 24%, which essentially reduces funding from short-term creditors or suppliers, etc. So it’s good to see this improvement in ROCE coming from the underlying economics of the business.
What We Can Learn from Alibaba Health Information Technology’s ROCE
Long story short, we’re pleased to see that Alibaba Health Information Technology’s reinvestment activities have paid off and the company is now profitable. Savvy investors may have an opportunity, as the stock is down 65% over the past five years. Therefore, it seems reasonable to research the company further and determine whether these trends are here to stay.
Finally, we found 1 warning sign for Alibaba Health Information Technology We think you should know this.
While Alibaba Health Information Technology may not be earning the highest returns right now, we’ve compiled a list of companies that are currently generating a return on equity above 25%.check it out free Listed here.
Valuation is complex, but we’re helping to make it simple.
see if Alibaba Health Information Technology could be overvalued or undervalued by looking at our comprehensive analysis, which includes Fair value estimates, risks and warnings, dividends, insider trading and financial health.
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This article from Simply Wall St is general in nature. We only use unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended to provide financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
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