Returns to medical facilities (TSE:DR) are not increasing
What trends should we look for if we want to identify stocks that can multiply in value over the long term? First, we would like to identify a growth to return to on capital employed (ROCE) and at the same time, a base capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. However, after briefly looking at the numbers, we don’t think Medical institutions (TSE:DR) has the makings of a multi-bagger in the future, but let’s see why.
Return on capital employed (ROCE): what is it?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. Analysts use this formula to calculate it for medical facilities:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.18 = $64 million ÷ ($447 million – $81 million) (Based on the last twelve months to December 2021).
So, Medical Facilities has a ROCE of 18%. By itself, this is a standard return, but it is much better than the 8.2% generated by the healthcare sector.
Check out our latest analysis for medical facilities
In the graph above, we measured the past ROCE of medical facilities against its past performance, but the future is arguably more important. If you wish, you can view analyst forecasts covering medical facilities here for free.
What can we say about the ROCE trend of medical institutions?
Over the past five years, ROCE and capital employed for medical facilities have remained virtually flat. It’s not uncommon to see this when looking at a mature, stable company that doesn’t reinvest earnings because it’s probably past that phase of the business cycle. With that in mind, unless investment picks up in the future, we wouldn’t expect medical facilities to be a multi-bagger in the future.
ROCE from our perspective on medical facilities
In a nutshell, Medical Facilities has painfully tracked the same returns from the same amount of capital over the past five years. And investors seem hesitant about the trend picking up as the stock has fallen 10% in the past five years. Therefore, based on the analysis performed in this article, we do not believe that Medical Facilities has the makings of a multi-bagger.
If you want to know the risks faced by medical institutions, we have discovered 2 warning signs of which you should be aware.
Although medical facilities do not generate the highest return, check out this free list of companies that achieve high returns on equity with strong balance sheets.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.