Yahoo Finance Will Medica Group (LON:MGP) Multiply In Value Going Forward?
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Medica Group's (LON:MGP) ROCE trend, we were pretty happy with what we saw.
Understanding Return On Capital Employed (ROCE)
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. Analysts use this formula to calculate it for Medica Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = UK£6.9m ÷ (UK£53m - UK£3.2m) (Based on the trailing twelve months to June 2020).
Thus, Medica Group has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 9.0% it's much better.
See our latest analysis for Medica Group
In the above chart we have measured Medica Group'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 Medica Group here for free.
What The Trend Of ROCE Can Tell Us
While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 14% and the business has deployed 72% more capital into its operations. 14% is a pretty standard return, and it provides some comfort knowing that Medica Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
Our Take On Medica Group's ROCE
The main thing to remember is that Medica Group has proven its ability to continually reinvest at respectable rates of return. Yet over the last three years the stock has declined 21%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.
Medica Group does have some risks though, and we've spotted 2 warning signs for Medica Group that you might be interested in.
While Medica 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.
This article by Simply Wall St is general in nature. 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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