Yahoo Finance Investors Could Be Concerned With M1 Kliniken's (ETR:M12) Returns On Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at M1 Kliniken (ETR:M12), it didn't seem to tick all of these boxes.
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. To calculate this metric for M1 Kliniken, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = €12m ÷ (€203m - €42m) (Based on the trailing twelve months to June 2023).
Therefore, M1 Kliniken has an ROCE of 7.3%. In absolute terms, that's a low return, but it's much better than the Healthcare industry average of 6.0%.
See our latest analysis for M1 Kliniken
In the above chart we have measured M1 Kliniken's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering M1 Kliniken for free.
What Does the ROCE Trend For M1 Kliniken Tell Us?
When we looked at the ROCE trend at M1 Kliniken, we didn't gain much confidence. Around five years ago the returns on capital were 9.6%, but since then they've fallen to 7.3%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
What We Can Learn From M1 Kliniken's ROCE
To conclude, we've found that M1 Kliniken is reinvesting in the business, but returns have been falling. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
M1 Kliniken does have some risks though, and we've spotted 2 warning signs for M1 Kliniken that you might be interested in.
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.
