Poly Medicure (NSE:POLYMED) Might Be Having Difficulty Using Its Capital Effectively

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Poly Medicure (NSE:POLYMED), it didn't seem to tick all of these boxes.

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Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Poly Medicure, this is the formula:

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

0.13 = ₹3.7b ÷ (₹32b - ₹3.7b) (Based on the trailing twelve months to March 2025).

So, Poly Medicure has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Medical Equipment industry average of 14%.

View our latest analysis for Poly Medicure

Above you can see how the current ROCE for Poly Medicure 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 Poly Medicure for free.

How Are Returns Trending?

We weren't thrilled with the trend because Poly Medicure's ROCE has reduced by 39% over the last five years, while the business employed 392% more capital. That being said, Poly Medicure raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Poly Medicure's earnings and if they change as a result from the capital raise.

On a side note, Poly Medicure has done well to pay down its current liabilities to 12% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On Poly Medicure's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Poly Medicure is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 705% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Poly Medicure, we've discovered 1 warning sign that you should be aware of.

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.