We Think Epitomee Medical (TLV:EPIT) Might Have The DNA Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Epitomee Medical (TLV:EPIT) we really liked what we saw.

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)

0.20 = US$7.8m ÷ (US$42m - US$1.9m) (Based on the trailing twelve months to September 2024).

Therefore, Epitomee Medical has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 8.2% earned by companies in a similar industry.

Check out our latest analysis for Epitomee Medical

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 , check out these free graphs detailing revenue and cash flow performance of Epitomee Medical.

The Trend Of ROCE

It's great to see that Epitomee Medical has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital three years ago. In regards to capital employed, Epitomee Medical is using 37% less capital than it was three years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.

Our Take On 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. Given the stock has declined 58% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 3 warning signs for Epitomee Medical (1 doesn't sit too well with us) you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.