The Returns At Ramsay Générale de Santé (EPA:GDS) Aren't Growing

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Ramsay Générale de Santé (EPA:GDS) and its ROCE trend, we weren't exactly thrilled.

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)

0.063 = €349m ÷ (€7.0b - €1.5b) (Based on the trailing twelve months to December 2022).

So, Ramsay Générale de Santé has an ROCE of 6.3%. In absolute terms, that's a low return but it's around the Healthcare industry average of 7.8%.

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 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

The returns on capital haven't changed much for Ramsay Générale de Santé in recent years. The company has consistently earned 6.3% for the last five years, and the capital employed within the business has risen 213% 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

As we've seen above, Ramsay Générale de Santé's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 8.3% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Ramsay Générale de Santé does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.