Yahoo Finance Advanced Medical Solutions Group (LON:AMS) Will Be Hoping To Turn Its Returns On Capital Around
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Advanced Medical Solutions Group (LON:AMS), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Advanced Medical Solutions Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.099 = UK£24m ÷ (UK£264m - UK£21m) (Based on the trailing twelve months to June 2022).
So, Advanced Medical Solutions Group has an ROCE of 9.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.9%.
Check out our latest analysis for Advanced Medical Solutions Group
In the above chart we have measured Advanced Medical Solutions Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Advanced Medical Solutions Group.
How Are Returns Trending?
When we looked at the ROCE trend at Advanced Medical Solutions Group, we didn't gain much confidence. Around five years ago the returns on capital were 15%, but since then they've fallen to 9.9%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Bottom Line
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Advanced Medical Solutions Group. These growth trends haven't led to growth returns though, since the stock has fallen 15% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
If you're still interested in Advanced Medical Solutions Group it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.
While Advanced Medical Solutions Group 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.
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