The Returns On Capital At Medartis Holding (VTX:MED) Don't Inspire Confidence

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. However, after investigating Medartis Holding (VTX:MED), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Medartis Holding, this is the formula:

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

0.0059 = CHF1.8m ÷ (CHF355m - CHF47m) (Based on the trailing twelve months to June 2023).

Therefore, Medartis Holding has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 15%.

View our latest analysis for Medartis Holding

Above you can see how the current ROCE for Medartis Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Medartis Holding.

How Are Returns Trending?

In terms of Medartis Holding's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 2.7% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Medartis Holding. In light of this, the stock has only gained 21% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

Medartis Holding does have some risks though, and we've spotted 2 warning signs for Medartis Holding that you might be interested in.

While Medartis Holding 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.