Ion Beam Applications (EBR:IBAB) Has Some Way To Go To Become A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Ion Beam Applications (EBR:IBAB), 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 Ion Beam Applications, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.10 = €17m ÷ (€550m - €385m) (Based on the trailing twelve months to June 2022).

Therefore, Ion Beam Applications has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Medical Equipment industry average of 8.8%.

See our latest analysis for Ion Beam Applications

Above you can see how the current ROCE for Ion Beam Applications 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 Ion Beam Applications here for free.

What Does the ROCE Trend For Ion Beam Applications Tell Us?

Things have been pretty stable at Ion Beam Applications, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Ion Beam Applications in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 70% of total assets, this reported ROCE would probably be less than10% because total capital employed would be higher.The 10% ROCE could be even lower if current liabilities weren't 70% of total assets, because the the formula would show a larger base of total capital employed. So with current liabilities at such high levels, this effectively means the likes of suppliers or short-term creditors are funding a meaningful part of the business, which in some instances can bring some risks.

The Bottom Line

We can conclude that in regards to Ion Beam Applications' returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 50% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Ion Beam Applications has the makings of a multi-bagger.

One more thing, we've spotted 1 warning sign facing Ion Beam Applications that you might find interesting.

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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.