What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of DocCheck (ETR:AJ91) looks great, so lets see what the trend can tell us.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on DocCheck is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = €6.1m ÷ (€34m - €8.2m) (Based on the trailing twelve months to June 2020).
So, DocCheck has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.
See our latest analysis for DocCheck
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'd like to look at how DocCheck has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
So How Is DocCheck's ROCE Trending?
DocCheck is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. Basically the business is earning more per dollar of capital invested and in addition to that, 44% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
Our Take On DocCheck's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what DocCheck has. And a remarkable 335% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
DocCheck does have some risks though, and we've spotted 1 warning sign for DocCheck that you might be interested in.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
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About XTRA:AJ91
DocCheck
Offers marketing and e-commerce services for the healthcare sector in Europe.
Flawless balance sheet, good value and pays a dividend.
