We Like These Underlying Return On Capital Trends At Epitomee Medical (TLV:EPIT)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Epitomee Medical's (TLV:EPIT) 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. To calculate this metric for Epitomee Medical, this is the formula:

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

0.011 = US$416k ÷ (US$40m - US$2.0m) (Based on the trailing twelve months to December 2023).

So, Epitomee Medical has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 8.3%.

View our latest analysis for Epitomee Medical

Historical performance is a great place to start when researching a stock so above you can see the gauge for Epitomee Medical's ROCE against it's prior returns. If you're interested in investigating Epitomee Medical's past further, check out this free graph covering Epitomee Medical's past earnings, revenue and cash flow.

The Trend Of ROCE

Like most people, we're pleased that Epitomee Medical is now generating some pretax earnings. The company was generating losses one year ago, but now it's turned around, earning 1.1% which is no doubt a relief for some early shareholders. In regards to capital employed, Epitomee Medical is using 28% less capital than it was one year ago, which on the surface, can indicate that the business has become more efficient at generating these returns. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

What We Can Learn From Epitomee Medical's ROCE

In the end, Epitomee Medical has proven it's capital allocation skills are good with those higher returns from less amount of capital. Astute investors may have an opportunity here because the stock has declined 65% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 3 warning signs we've spotted with Epitomee Medical (including 1 which can't be ignored) .

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.