Returns Are Gaining Momentum At MyHealthChecked (LON:MHC)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So when we looked at MyHealthChecked (LON:MHC) and its trend of ROCE, we really liked what we saw.

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 MyHealthChecked is:

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

0.14 = UK£1.2m ÷ (UK£10m - UK£1.6m) (Based on the trailing twelve months to June 2023).

Therefore, MyHealthChecked has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 9.1% it's much better.

Check out our latest analysis for MyHealthChecked

Historical performance is a great place to start when researching a stock so above you can see the gauge for MyHealthChecked's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of MyHealthChecked, check out these free graphs here.

What Does the ROCE Trend For MyHealthChecked Tell Us?

We're delighted to see that MyHealthChecked is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 14% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, MyHealthChecked is utilizing 398% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On MyHealthChecked's ROCE

Long story short, we're delighted to see that MyHealthChecked's reinvestment activities have paid off and the company is now profitable. Although the company may be facing some issues elsewhere since the stock has plunged 88% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

One more thing: We've identified 4 warning signs with MyHealthChecked (at least 2 which are concerning) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.