Ramsay Générale de Santé (EPA:GDS) Is Reinvesting At Lower Rates Of Return

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Ramsay Générale de Santé (EPA:GDS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Ramsay Générale de Santé is:

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

0.045 = €247m ÷ (€7.0b - €1.5b) (Based on the trailing twelve months to June 2023).

Therefore, Ramsay Générale de Santé has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 8.4%.

View our latest analysis for Ramsay Générale de Santé

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'd like to look at how Ramsay Générale de Santé has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Ramsay Générale de Santé's ROCE Trending?

On the surface, the trend of ROCE at Ramsay Générale de Santé doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.5% from 6.7% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Ramsay Générale de Santé's ROCE

In summary, Ramsay Générale de Santé is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly, the stock has only gained 25% 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.

Ramsay Générale de Santé does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While Ramsay Générale de Santé 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.