Clínica Baviera (BME:CBAV) Is Achieving High Returns On Its Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Clínica Baviera's (BME:CBAV) look very promising so lets take a look.

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

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. To calculate this metric for Clínica Baviera, this is the formula:

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

0.44 = €53m ÷ (€203m - €83m) (Based on the trailing twelve months to June 2024).

So, Clínica Baviera has an ROCE of 44%. That's a fantastic return and not only that, it outpaces the average of 8.2% earned by companies in a similar industry.

View our latest analysis for Clínica Baviera

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 Clínica Baviera's past further, check out this free graph covering Clínica Baviera's past earnings, revenue and cash flow.

So How Is Clínica Baviera's ROCE Trending?

Clínica Baviera is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 44%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 83%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, Clínica Baviera's current liabilities are still rather high at 41% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

All in all, it's terrific to see that Clínica Baviera is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Clínica Baviera, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.