Ramsay Générale de Santé (EPA:GDS) Will Will Want To Turn Around Its Return Trends

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Ramsay Générale de Santé (EPA:GDS), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.048 = €248m ÷ (€6.8b - €1.6b) (Based on the trailing twelve months to December 2020).

So, Ramsay Générale de Santé has an ROCE of 4.8%. Even though it's in line with the industry average of 4.7%, it's still a low return by itself.

Check out 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'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. To be more specific, ROCE has fallen from 8.9% over the last five years. However it looks like Ramsay Générale de Santé might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

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. Since the stock has gained an impressive 46% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we've found 2 warning signs for Ramsay Générale de Santé that we think you should be aware of.

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. 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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