MEDICLIN (ETR:MED) Hasn't Managed To Accelerate Its Returns

Simply Wall St
·3 min read

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at MEDICLIN (ETR:MED), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.035 = €23m ÷ (€849m - €199m) (Based on the trailing twelve months to June 2022).

So, MEDICLIN has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 5.6%.

Check out our latest analysis for MEDICLIN

roce
roce

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, you can check out the forecasts from the analysts covering MEDICLIN here for free.

The Trend Of ROCE

The returns on capital haven't changed much for MEDICLIN in recent years. The company has consistently earned 3.5% for the last five years, and the capital employed within the business has risen 123% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On MEDICLIN's ROCE

As we've seen above, MEDICLIN's returns on capital haven't increased but it is reinvesting in the business. And in the last five years, the stock has given away 46% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think MEDICLIN has the makings of a multi-bagger.

One more thing to note, we've identified 1 warning sign with MEDICLIN and understanding it should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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