Investors Will Want Amplitude Surgical's (EPA:AMPLI) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Amplitude Surgical's (EPA:AMPLI) returns on capital, so let's have a look.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Amplitude Surgical:

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

0.047 = €10m ÷ (€266m - €41m) (Based on the trailing twelve months to December 2023).

Thus, Amplitude Surgical has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 8.6%.

See our latest analysis for Amplitude Surgical

Historical performance is a great place to start when researching a stock so above you can see the gauge for Amplitude Surgical's ROCE against it's prior returns. If you're interested in investigating Amplitude Surgical's past further, check out this free graph covering Amplitude Surgical's past earnings, revenue and cash flow.

What Does the ROCE Trend For Amplitude Surgical Tell Us?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 347% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Amplitude Surgical's ROCE

To sum it up, Amplitude Surgical is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 26% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

While Amplitude Surgical looks impressive, no company is worth an infinite price. The intrinsic value infographic for AMPLI helps visualize whether it is currently trading for a fair price.

While Amplitude Surgical 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.