Yahoo Finance We Think LIMES Schlosskliniken (ETR:LIK) Might Have The DNA Of A Multi-Bagger
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in LIMES Schlosskliniken's (ETR:LIK) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on LIMES Schlosskliniken is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = €4.8m ÷ (€27m - €3.9m) (Based on the trailing twelve months to June 2023).
Thus, LIMES Schlosskliniken has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 5.2%.
View our latest analysis for LIMES Schlosskliniken
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how LIMES Schlosskliniken has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
We're delighted to see that LIMES Schlosskliniken is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 21% on its capital. Not only that, but the company is utilizing 182% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Key Takeaway
In summary, it's great to see that LIMES Schlosskliniken has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if LIMES Schlosskliniken can keep these trends up, it could have a bright future ahead.
LIMES Schlosskliniken does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...
LIMES Schlosskliniken is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
