Advanced Medical Solutions Group (LON:AMS) Will Want To Turn Around Its Return Trends

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Advanced Medical Solutions Group (LON:AMS) 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. Analysts use this formula to calculate it for Advanced Medical Solutions Group:

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

0.099 = UK£24m ÷ (UK£264m - UK£21m) (Based on the trailing twelve months to June 2022).

Thus, Advanced Medical Solutions Group has an ROCE of 9.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.9%.

Check out our latest analysis for Advanced Medical Solutions Group

Above you can see how the current ROCE for Advanced Medical Solutions Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Advanced Medical Solutions Group.

The Trend Of ROCE

In terms of Advanced Medical Solutions Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 9.9% from 15% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Advanced Medical Solutions Group's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Advanced Medical Solutions Group is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 14% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you're still interested in Advanced Medical Solutions Group it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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. 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.