Gesundheitswelt Chiemgau's (MUN:JTH) Returns Have Hit A Wall

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Gesundheitswelt Chiemgau (MUN:JTH), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Gesundheitswelt Chiemgau, this is the formula:

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

0.055 = €3.9m ÷ (€80m - €9.2m) (Based on the trailing twelve months to December 2023).

Therefore, Gesundheitswelt Chiemgau has an ROCE of 5.5%. In absolute terms, that's a low return but it's around the Healthcare industry average of 5.3%.

Check out our latest analysis for Gesundheitswelt Chiemgau

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

How Are Returns Trending?

There hasn't been much to report for Gesundheitswelt Chiemgau's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Gesundheitswelt Chiemgau in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On Gesundheitswelt Chiemgau's ROCE

In summary, Gesundheitswelt Chiemgau isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 12% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing to note, we've identified 3 warning signs with Gesundheitswelt Chiemgau and understanding these should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.