Should We Be Excited About The Trends Of Returns At Ramsay Générale de Santé (EPA:GDS)?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after investigating Ramsay Générale de Santé (EPA:GDS), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Ramsay Générale de Santé:

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

0.036 = €184m ÷ (€6.7b - €1.6b) (Based on the trailing twelve months to June 2020).

Therefore, Ramsay Générale de Santé has an ROCE of 3.6%. Even though it's in line with the industry average of 3.6%, it's still a low return by itself.

See 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, revenue and cash flow of Ramsay Générale de Santé, check out these free graphs here.

The Trend Of ROCE

In terms of Ramsay Générale de Santé's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.6% from 7.0% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Ramsay Générale de Santé's ROCE

While returns have fallen for Ramsay Générale de Santé in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 28% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

If you'd like to know about the risks facing Ramsay Générale de Santé, we've discovered 1 warning sign that you should be aware of.

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. 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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