Some Investors May Be Worried About Maternus-Kliniken's (ETR:MAK) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Maternus-Kliniken (ETR:MAK) and its ROCE trend, we weren't exactly thrilled.

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

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. To calculate this metric for Maternus-Kliniken, this is the formula:

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

0.0019 = €259k ÷ (€179m - €43m) (Based on the trailing twelve months to December 2020).

Thus, Maternus-Kliniken has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 6.2%.

View our latest analysis for Maternus-Kliniken

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 want to delve into the historical earnings, revenue and cash flow of Maternus-Kliniken, check out these free graphs here.

The Trend Of ROCE

In terms of Maternus-Kliniken's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 8.0% over the last five years. 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.

Our Take On Maternus-Kliniken's ROCE

Bringing it all together, while we're somewhat encouraged by Maternus-Kliniken's reinvestment in its own business, we're aware that returns are shrinking. Yet to long term shareholders the stock has gifted them an incredible 195% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know about the risks facing Maternus-Kliniken, we've discovered 3 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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