There Are Reasons To Feel Uneasy About Medlive Technology’s (HKG:2192) Returns On Capital

If we want to find stocks that can multiply for a long time, what are the things we should look for? Ideally, business will show two types; first of all great return on gross operating income (ROCE) and secondly, increase the amount of capital work. Basically this means that the company has profitable plans that it can continue to reinvest in, which is the characteristic of a hybrid machine. Although, when we look Medlive technology (HKG:2192), it seems he didn’t check all these boxes.

What is Return on Capital Operating (ROCE)?

For those who are not sure what ROCE is, it measures the amount of profit a company will make before tax from the capital employed in its business. To calculate this metric for Medlive Technology, this is the formula:

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

0.0084 = CN¥36m ÷ (CN¥4.3b – CN¥120m) (Based on the next twelve months to June 2022).

So, Medlive Technology has a ROCE of 0.8%. In absolute terms, this is a low return and is subject to the Health Services industry average of 10%.

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Look inside opportunity and risk Changes in HK Healthcare Services.

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SEHK: 2192 Return on Capital Work October 31st 2022

In the chart above we measure Medlive Technology’s first ROCE based on past performance, but the future is certainly important. If you’re interested, you can check out our analyst predictions grant reporting on the company’s analyst forecasts.

How is the return going?

When we looked at the ROCE situation at Medlive Technology, we were not very encouraging. To be more specific, ROCE fell from 49% in the last three years. However, given that the income and the number of assets used in the business have increased, it may indicate that the company is investing in development, and the increased investment has led to a decrease in ROCE in the short term. And if the capital investment leads to more profit, the business, and thus the shareholders, will benefit in the long run.

On a related note, Medlive Technologies reduced its current liabilities to 2.8% of total assets. So we can attribute some of this to the decline in ROCE. In addition, this can reduce some of the risk factors for the business because now the company’s suppliers or short-term creditors finance its operations. Some would argue that this reduces the business’s growth in generating ROCE since it is now providing more services with its money.

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Our Topic on Medlive Technology’s ROCE

Although the return on capital has fallen in the short term, we see it as promising that both revenue and capital employed have increased for Medlive Technologies. But since the stock has sunk by 84% in the past year, there may be other drivers influencing the business environment. Therefore, we recommend doing research on the stock to find out more about the business.

Another thing, we found out 2 warning signs experience Medlive Technology that you may find interesting.

If you want to check out strong companies with high profits, check this out grant a list of companies with good balance sheets and a focus on equity.

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Assessment is complicated, but we help make it easy.

Find out Medlive technology may be over or under rated by checking out our full review, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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 approach and our articles are not intended to constitute financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals, or your financial situation. We aim to bring you long-term focused research that is data driven. Note that it may be maybe Maybe it’s a creative idea for a company that has a lot of value. Simply Wall St has no position in any of the stocks mentioned.

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