Returns On Capital Signal Tricky Times Ahead For Gesundheitswelt Chiemgau (MUN:JTH)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Gesundheitswelt Chiemgau (MUN:JTH), we don't think it's current trends fit the mold of a multi-bagger.

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 Gesundheitswelt Chiemgau is:

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).

Therefore, Gesundheitswelt Chiemgau has an ROCE of 6.5%. On its own, that's a low figure but it's around the 6.9% average generated by the Healthcare industry.

See 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'd like to look at how Gesundheitswelt Chiemgau has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Gesundheitswelt Chiemgau's ROCE Trend?

When we looked at the ROCE trend at Gesundheitswelt Chiemgau, we didn't gain much confidence. 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

In summary, Gesundheitswelt Chiemgau is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 385% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One final note, you should learn about the 4 warning signs we've spotted with Gesundheitswelt Chiemgau (including 1 which is significant) .

While Gesundheitswelt Chiemgau may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.
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