Ramsay Générale de Santé (EPA:GDS) Will Be Hoping To Turn Its Returns On Capital Around

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. Having said that, after a brief look, Ramsay Générale de Santé (EPA:GDS) we aren't filled with optimism, but let's investigate further.

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Understanding Return On Capital Employed (ROCE)

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)

0.031 = €158m ÷ (€6.5b - €1.4b) (Based on the trailing twelve months to December 2024).

Therefore, Ramsay Générale de Santé has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 8.3%.

Check out 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Ramsay Générale de Santé .

What Can We Tell From Ramsay Générale de Santé's ROCE Trend?

We are a bit worried about the trend of returns on capital at Ramsay Générale de Santé. About five years ago, returns on capital were 3.9%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Ramsay Générale de Santé to turn into a multi-bagger.

The Bottom Line On Ramsay Générale de Santé's ROCE

In summary, it's unfortunate that Ramsay Générale de Santé is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 42% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Like most companies, Ramsay Générale de Santé does come with some risks, and we've found 2 warning signs that you should be aware of.

While Ramsay Générale de Santé may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.