Has Medica Group (LON:MGP) Got What It Takes To Become A Multi-Bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, the ROCE of Medica Group (LON:MGP) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

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 Medica Group:

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

0.14 = UK£6.9m ÷ (UK£53m - UK£3.2m) (Based on the trailing twelve months to June 2020).

So, Medica Group has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 9.0% it's much better.

View our latest analysis for Medica Group

Above you can see how the current ROCE for Medica Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Medica Group Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 72% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Medica Group has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Medica Group's ROCE

The main thing to remember is that Medica Group has proven its ability to continually reinvest at respectable rates of return. Yet over the last three years the stock has declined 18%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

One more thing, we've spotted 2 warning signs facing Medica Group that you might find interesting.

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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