Why We Like The Returns At LIMES Schlosskliniken (ETR:LIK)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at LIMES Schlosskliniken's (ETR:LIK) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

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 LIMES Schlosskliniken is:

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

0.21 = €4.8m ÷ (€27m - €3.9m) (Based on the trailing twelve months to June 2023).

Thus, LIMES Schlosskliniken has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 6.0% earned by companies in a similar industry.

See our latest analysis for LIMES Schlosskliniken

In the above chart we have measured LIMES Schlosskliniken's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering LIMES Schlosskliniken for free.

What The Trend Of ROCE Can Tell Us

We're delighted to see that LIMES Schlosskliniken is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 21% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, LIMES Schlosskliniken is utilizing 182% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line

Long story short, we're delighted to see that LIMES Schlosskliniken's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 207% to shareholders over the last three years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about LIMES Schlosskliniken, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

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. 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.