Artemis Medicare Services (NSE:ARTEMISMED) Is Reinvesting At Lower Rates Of Return

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at Artemis Medicare Services (NSE:ARTEMISMED) and its ROCE trend, we weren't exactly thrilled.

Understanding 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 Artemis Medicare Services is:

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

0.097 = ₹503m ÷ (₹6.6b - ₹1.4b) (Based on the trailing twelve months to December 2021).

So, Artemis Medicare Services has an ROCE of 9.7%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 18%.

View our latest analysis for Artemis Medicare Services

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're interested in investigating Artemis Medicare Services' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Artemis Medicare Services Tell Us?

On the surface, the trend of ROCE at Artemis Medicare Services doesn't inspire confidence. Over the last five years, returns on capital have decreased to 9.7% from 14% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Artemis Medicare Services. And the stock has followed suit returning a meaningful 46% to shareholders over the last year. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

One final note, you should learn about the 3 warning signs we've spotted with Artemis Medicare Services (including 1 which makes us a bit uncomfortable) .

While Artemis Medicare Services may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.