What Can The Trends At Athens Medical Center (ATH:IATR) Tell Us About Their Returns?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Athens Medical Center's (ATH:IATR) returns on capital, so let's have a look.

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. The formula for this calculation on Athens Medical Center is:

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

0.032 = €7.4m ÷ (€376m - €145m) (Based on the trailing twelve months to June 2020).

Thus, Athens Medical Center has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 7.0%.

See our latest analysis for Athens Medical Center

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 Athens Medical Center, check out these free graphs here.

How Are Returns Trending?

Athens Medical Center has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 3.2% which is a sight for sore eyes. In addition to that, Athens Medical Center is employing 119% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 38%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Athens Medical Center's ROCE

In summary, it's great to see that Athens Medical Center has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Athens Medical Center looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether IATR is currently trading for a fair price.

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. 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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