Some Investors May Be Worried About Clínica Las Condes' (SNSE:LAS CONDES) Returns On 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. In light of that, when we looked at Clínica Las Condes (SNSE:LAS CONDES) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Clínica Las Condes is:

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

0.016 = CL$7.9b ÷ (CL$564b - CL$70b) (Based on the trailing twelve months to December 2020).

Thus, Clínica Las Condes has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 11%.

Check out our latest analysis for Clínica Las Condes

Historical performance is a great place to start when researching a stock so above you can see the gauge for Clínica Las Condes' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Clínica Las Condes, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

In terms of Clínica Las Condes' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.6% from 5.6% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

In summary, Clínica Las Condes is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 19% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Clínica Las Condes does have some risks, we noticed 3 warning signs (and 2 which are concerning) we think you should 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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