The Returns At EuKedos (BIT:EUK) Aren't Growing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after investigating EuKedos (BIT:EUK), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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 EuKedos, this is the formula:

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

0.034 = €4.5m ÷ (€152m - €20m) (Based on the trailing twelve months to June 2023).

So, EuKedos has an ROCE of 3.4%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 8.8%.

See our latest analysis for EuKedos

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'd like to look at how EuKedos has performed in the past in other metrics, you can view this free graph of EuKedos' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of EuKedos' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 3.4% for the last five years, and the capital employed within the business has risen 186% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 13% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line

In conclusion, EuKedos has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 26% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 5 warning signs for EuKedos (1 shouldn't be ignored) you should be aware of.

While EuKedos 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.