Returns On Capital At Gesundheitswelt Chiemgau (MUN:JTH) Paint A Concerning Picture

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Gesundheitswelt Chiemgau (MUN:JTH) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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)

0.065 = €4.3m ÷ (€77m - €11m) (Based on the trailing twelve months to December 2020).

Thus, Gesundheitswelt Chiemgau has an ROCE of 6.5%. On its own, that's a low figure but it's around the 7.2% average generated by the Healthcare industry.

View our latest analysis for Gesundheitswelt Chiemgau

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're interested in investigating Gesundheitswelt Chiemgau's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Gesundheitswelt Chiemgau's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 13% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that Gesundheitswelt Chiemgau is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 334% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Gesundheitswelt Chiemgau does have some risks, we noticed 5 warning signs (and 1 which is potentially serious) we think you should know about.

While Gesundheitswelt Chiemgau isn't earning the highest return, check out this free list of companies that are 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.