Returns Are Gaining Momentum At Health Italia (BIT:HI)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Health Italia (BIT:HI) and its trend of ROCE, we really liked what we saw.

What Is 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. The formula for this calculation on Health Italia is:

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

0.12 = €5.5m ÷ (€67m - €20m) (Based on the trailing twelve months to December 2023).

So, Health Italia has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 8.2% it's much better.

View our latest analysis for Health Italia

Historical performance is a great place to start when researching a stock so above you can see the gauge for Health Italia's ROCE against it's prior returns. If you're interested in investigating Health Italia's past further, check out this free graph covering Health Italia's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Health Italia is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 76% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

As discussed above, Health Italia appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And since the stock has dived 77% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Health Italia (of which 1 can't be ignored!) that you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com