medmix (VTX:MEDX) May Have Issues Allocating Its Capital

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating medmix (VTX:MEDX), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for medmix:

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

0.075 = CHF63m ÷ (CHF978m - CHF141m) (Based on the trailing twelve months to June 2022).

Therefore, medmix has an ROCE of 7.5%. In absolute terms, that's a low return but it's around the Medical Equipment industry average of 8.7%.

Check out our latest analysis for medmix

Above you can see how the current ROCE for medmix 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 medmix.

What Can We Tell From medmix's ROCE Trend?

When we looked at the ROCE trend at medmix, we didn't gain much confidence. To be more specific, ROCE has fallen from 9.9% over the last three 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.

What We Can Learn From medmix's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that medmix is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 62% in the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to continue researching medmix, you might be interested to know about the 1 warning sign that our analysis has discovered.

While medmix 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.