Under The Bonnet, Euromedis Groupe's (EPA:ALEMG) Returns Look Impressive

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Speaking of which, we noticed some great changes in Euromedis Groupe's (EPA:ALEMG) returns on capital, so let's have 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 Euromedis Groupe, this is the formula:

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

0.47 = €32m ÷ (€78m - €11m) (Based on the trailing twelve months to June 2021).

Therefore, Euromedis Groupe has an ROCE of 47%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

Check out our latest analysis for Euromedis Groupe

Above you can see how the current ROCE for Euromedis Groupe compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Euromedis Groupe Tell Us?

Investors would be pleased with what's happening at Euromedis Groupe. Over the last five years, returns on capital employed have risen substantially to 47%. 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 102%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 14%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Euromedis Groupe's ROCE

In summary, it's great to see that Euromedis Groupe can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 94% return over the last five years. In light of that, we think it's worth looking further into this stock because if Euromedis Groupe can keep these trends up, it could have a bright future ahead.

On a final note, we found 5 warning signs for Euromedis Groupe (2 can't be ignored) you should be aware of.

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.

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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