Returns On Capital At Clínica Las Condes (SNSE:LAS CONDES) Paint A Concerning Picture

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Clínica Las Condes (SNSE:LAS CONDES) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is 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 Clínica Las Condes is:

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

0.029 = CL$14b ÷ (CL$563b - CL$92b) (Based on the trailing twelve months to December 2023).

Thus, Clínica Las Condes has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 9.9%.

See our latest analysis for Clínica Las Condes

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Clínica Las Condes.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Clínica Las Condes doesn't inspire confidence. To be more specific, ROCE has fallen from 6.1% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

In Conclusion...

In summary, we're somewhat concerned by Clínica Las Condes' diminishing returns on increasing amounts of capital. Investors haven't taken kindly to these developments, since the stock has declined 61% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing to note, we've identified 3 warning signs with Clínica Las Condes and understanding these should be part of your investment process.

While Clínica Las Condes 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.