Should You Be Impressed By Clínica Las Condes' (SNSE:LAS CONDES) Returns on Capital?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Clínica Las Condes (SNSE:LAS CONDES), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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 Clínica Las Condes:

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

0.0022 = CL$1.1b ÷ (CL$554b - CL$63b) (Based on the trailing twelve months to September 2020).

Thus, Clínica Las Condes has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 12%.

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're interested in investigating Clínica Las Condes' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Clínica Las Condes Tell Us?

When we looked at the ROCE trend at Clínica Las Condes, we didn't gain much confidence. To be more specific, ROCE has fallen from 6.2% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

What We Can Learn From Clínica Las Condes' ROCE

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 32% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a separate note, we've found 2 warning signs for Clínica Las Condes you'll probably want to know about.

While Clínica Las Condes may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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