We're Watching These Trends At Medartis Holding (VTX:MED)

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. 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 Medartis Holding (VTX:MED) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Medartis Holding is:

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

0.013 = CHF3.3m ÷ (CHF277m - CHF26m) (Based on the trailing twelve months to June 2020).

Thus, Medartis Holding has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 9.1%.

See 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.

What Does the ROCE Trend For Medartis Holding Tell Us?

In terms of Medartis Holding's historical ROCE movements, the trend isn't fantastic. Over the last four years, returns on capital have decreased to 1.3% from 13% four years ago. However it looks like Medartis Holding 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 may take some time before the company starts to see any change in earnings from these investments.

Our Take On Medartis Holding's ROCE

In summary, Medartis Holding is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Although the market must be expecting these trends to improve because the stock has gained 22% over the last year. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you're still interested in Medartis Holding it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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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