Ramsay Générale de Santé (EPA:GDS) Has Some Way To Go To Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Having said that, from a first glance at Ramsay Générale de Santé (EPA:GDS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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 Ramsay Générale de Santé, this is the formula:

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

0.081 = €425m ÷ (€6.5b - €1.3b) (Based on the trailing twelve months to December 2021).

Therefore, Ramsay Générale de Santé has an ROCE of 8.1%. In absolute terms, that's a low return, but it's much better than the Healthcare industry average of 6.0%.

See our latest analysis for Ramsay Générale de Santé

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ramsay Générale de Santé's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Ramsay Générale de Santé, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Ramsay Générale de Santé in recent years. The company has consistently earned 8.1% for the last five years, and the capital employed within the business has risen 201% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In summary, Ramsay Générale de Santé has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 50% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know more about Ramsay Générale de Santé, we've spotted 2 warning signs, and 1 of them is significant.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.