This analysis is intended to introduce important early concepts to people who are starting to invest and want to begin learning the link between medical columbus AG (DB:MCE)’s return fundamentals and stock market performance.
medical columbus stock represents an ownership share in the company. This share represents a portion of capital used by the company to operate the business, and it is important the company is able to use the capital base efficiently to create adequate cash flows for you as an investor. This is because the actual cash flow generated by the business dictates the potential for income (dividends) and capital appreciation (price increases), which are the two ways to achieve positive returns when buying a stock. Therefore, looking at how efficiently medical columbus is able to use capital to create earnings will help us understand your potential return. Investors use many different metrics but the analysis below focuses on return on capital employed (ROCE). Let’s take a look at what it can tell us.View our latest analysis for medical columbus
medical columbus’s Return On Capital Employed
You only have a finite amount of capital to invest, so there are only so many companies that you can add to your portfolio. Therefore all else aside, your investment in a certain company represents a vote of confidence that the money used to buy the stock will grow larger than if invested elsewhere. So the business’ ability to grow the size of your capital is very important and can be assessed by comparing the return on capital you can get on your investment with a hurdle rate that depends on the other return possibilities you can identify. We’ll look at medical columbus’s returns by computing return on capital employed, which will tell us what the company can generate from the money spent in operations. MCE’s ROCE is calculated below:
ROCE Calculation for MCE
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = €316.60K ÷ (€4.27M – €380.00K) = 8.14%
The calculation above shows that MCE’s earnings were 8.14% of capital employed. This makes medical columbus unattractive when compared to a robust 15% ROCE yardstick. So if this rate continues in to the future, investor capital will be able to compound over time, but not to the extent investors should be aiming for.
What is causing this?
MCE doesn’t return an attractive amount on capital, but this will only continue if the company is unable to increase earnings or decrease current capital requirements. Therefore, investors need to understand the trend of the inputs in the formula above, so that they can see if there is an opportunity to invest. Three years ago, MCE’s ROCE was 9.15%, which means the company’s capital returns have worsened. Over the same period, EBT went from €213.62K to €316.60K but capital employed has increased by a proportionally greater amount due to a hike in the level of total assets , which means that although earnings have increased, MCE requires more capital to produce each €1 of earnings.
MCE’s investors have experienced a downward trend in ROCE and it is currently at a level that makes us question whether the company is capable of providing a suitable return on investment. But don’t forget, return on capital employed is a static metric that should be looked at in conjunction with other fundamental indicators like the management team. If you’re building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate MCE or move on to other alternatives.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for medical columbus’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.