Metropolis Healthcare (NSE:METROPOLIS) Might Be Having Difficulty Using Its Capital Effectively

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after investigating Metropolis Healthcare (NSE:METROPOLIS), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Metropolis Healthcare:

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

0.17 = ₹2.1b ÷ (₹15b - ₹2.9b) (Based on the trailing twelve months to December 2022).

Thus, Metropolis Healthcare has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 13% generated by the Healthcare industry.

View our latest analysis for Metropolis Healthcare

Above you can see how the current ROCE for Metropolis Healthcare compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Metropolis Healthcare here for free.

What Can We Tell From Metropolis Healthcare's ROCE Trend?

On the surface, the trend of ROCE at Metropolis Healthcare doesn't inspire confidence. Over the last five years, returns on capital have decreased to 17% from 39% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

In summary, Metropolis Healthcare is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 22% in the last three years. Therefore based on the analysis done in this article, we don't think Metropolis Healthcare has the makings of a multi-bagger.

On a final note, we've found 2 warning signs for Metropolis Healthcare that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.