Yahoo Finance Investors Could Be Concerned With MEDICLIN's (ETR:MED) Returns On Capital
There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating MEDICLIN (ETR:MED), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for MEDICLIN, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.02 = €15m ÷ (€906m - €167m) (Based on the trailing twelve months to June 2023).
Therefore, MEDICLIN has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 5.2%.
See our latest analysis for MEDICLIN
Above you can see how the current ROCE for MEDICLIN compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for MEDICLIN.
What Can We Tell From MEDICLIN's ROCE Trend?
When we looked at the ROCE trend at MEDICLIN, we didn't gain much confidence. To be more specific, ROCE has fallen from 2.9% over the last five years. 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.
Our Take On MEDICLIN's ROCE
To conclude, we've found that MEDICLIN is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 54% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.
One more thing, we've spotted 2 warning signs facing MEDICLIN that you might find interesting.
While MEDICLIN isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
