Poly Medicure (NSE:POLYMED) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. However, after briefly looking over the numbers, we don't think Poly Medicure (NSE:POLYMED) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

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 Poly Medicure is:

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

0.15 = ₹1.6b ÷ (₹13b - ₹2.4b) (Based on the trailing twelve months to December 2021).

So, Poly Medicure has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Medical Equipment industry.

See our latest analysis for Poly Medicure

In the above chart we have measured Poly Medicure's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Poly Medicure here for free.

What Can We Tell From Poly Medicure's ROCE Trend?

On the surface, the trend of ROCE at Poly Medicure doesn't inspire confidence. Over the last five years, returns on capital have decreased to 15% from 22% 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.

Our Take 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 242% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

One more thing to note, we've identified 2 warning signs with Poly Medicure and understanding these should be part of your investment process.

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.