Returns At PULSION Medical Systems (MUN:PUS) Appear To Be Weighed Down

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, while the ROCE is currently high for PULSION Medical Systems (MUN:PUS), we aren't jumping out of our chairs because returns are decreasing.

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Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on PULSION Medical Systems is:

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

0.22 = €4.7m ÷ (€34m - €12m) (Based on the trailing twelve months to December 2023).

So, PULSION Medical Systems has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 9.4%.

View our latest analysis for PULSION Medical Systems

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 PULSION Medical Systems' past further, check out this free graph covering PULSION Medical Systems' past earnings, revenue and cash flow.

What Does the ROCE Trend For PULSION Medical Systems Tell Us?

There hasn't been much to report for PULSION Medical Systems' returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. Although current returns are high, we'd need more evidence of underlying growth for it to look like a multi-bagger going forward.

The Bottom Line On PULSION Medical Systems' ROCE

While PULSION Medical Systems has impressive profitability from its capital, it isn't increasing that amount of capital. Unsurprisingly, the stock has only gained 28% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

PULSION Medical Systems does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those can't be ignored...

PULSION Medical Systems is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.