Stock Analysis

Returns On Capital Are A Standout For DocCheck (ETR:AJ91)

XTRA:AJ91
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of DocCheck (ETR:AJ91) looks great, so lets see what the trend can tell us.

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. To calculate this metric for DocCheck, this is the formula:

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

0.46 = €19m ÷ (€55m - €14m) (Based on the trailing twelve months to June 2021).

Thus, DocCheck has an ROCE of 46%. In absolute terms that's a great return and it's even better than the Healthcare Services industry average of 9.9%.

Check out our latest analysis for DocCheck

roce
XTRA:AJ91 Return on Capital Employed March 3rd 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for DocCheck's ROCE against it's prior returns. If you're interested in investigating DocCheck's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For DocCheck Tell Us?

DocCheck is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 46%. The amount of capital employed has increased too, by 118%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On DocCheck's ROCE

To sum it up, DocCheck has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 184% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 2 warning signs with DocCheck and understanding these should be part of your investment process.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.