What Do The Returns At SHL Telemedicine (VTX:SHLTN) Mean Going Forward?

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, we've noticed some promising trends at SHL Telemedicine (VTX:SHLTN) so let's look a bit deeper.

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. Analysts use this formula to calculate it for SHL Telemedicine:

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

0.035 = US$1.7m ÷ (US$61m - US$13m) (Based on the trailing twelve months to June 2020).

So, SHL Telemedicine has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 7.0%.

View our latest analysis for SHL Telemedicine

Historical performance is a great place to start when researching a stock so above you can see the gauge for SHL Telemedicine's ROCE against it's prior returns. If you'd like to look at how SHL Telemedicine has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While the ROCE is still rather low for SHL Telemedicine, we're glad to see it heading in the right direction. We found that the returns on capital employed over the last five years have risen by 1,081%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, SHL Telemedicine appears to been achieving more with less, since the business is using 37% less capital to run its operation. SHL Telemedicine may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take On SHL Telemedicine's ROCE

In a nutshell, we're pleased to see that SHL Telemedicine has been able to generate higher returns from less capital. And with a respectable 49% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 5 warning signs with SHL Telemedicine and understanding them should be part of your investment process.

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

When trading SHL Telemedicine or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.