Dimed Distribuidora de Medicamentos (BVMF:PNVL3) Is Reinvesting At Lower Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Dimed Distribuidora de Medicamentos (BVMF:PNVL3) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is 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. The formula for this calculation on Dimed Distribuidora de Medicamentos is:

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

0.059 = R$88m ÷ (R$2.3b - R$742m) (Based on the trailing twelve months to March 2021).

Therefore, Dimed Distribuidora de Medicamentos has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 12%.

View our latest analysis for Dimed Distribuidora de Medicamentos

In the above chart we have measured Dimed Distribuidora de Medicamentos' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Dimed Distribuidora de Medicamentos' ROCE Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 20% five years ago, while the business's capital employed increased by 237%. That being said, Dimed Distribuidora de Medicamentos raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Dimed Distribuidora de Medicamentos' earnings and if they change as a result from the capital raise.

The Bottom Line

To conclude, we've found that Dimed Distribuidora de Medicamentos is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 23% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Dimed Distribuidora de Medicamentos could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Dimed Distribuidora de Medicamentos isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.
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