Centro de Imagem Diagnósticos (BVMF:AALR3) Will Be Hoping To Turn Its Returns On Capital Around

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Centro de Imagem Diagnósticos (BVMF:AALR3) and its ROCE trend, we weren't exactly thrilled.

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 Centro de Imagem Diagnósticos is:

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

0.0065 = R$13m ÷ (R$2.6b - R$522m) (Based on the trailing twelve months to March 2021).

Therefore, Centro de Imagem Diagnósticos has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 12%.

See our latest analysis for Centro de Imagem Diagnósticos

Above you can see how the current ROCE for Centro de Imagem Diagnósticos 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 Centro de Imagem Diagnósticos here for free.

What The Trend Of ROCE Can Tell Us

In terms of Centro de Imagem Diagnósticos' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.6% from 7.1% five years ago. However it looks like Centro de Imagem Diagnósticos might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that Centro de Imagem Diagnósticos is reinvesting in the business, but returns have been falling. And in the last three years, the stock has given away 11% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we've found 2 warning signs for Centro de Imagem Diagnósticos that we think you should be aware of.

While Centro de Imagem Diagnósticos may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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