The Returns At Svas Biosana (BIT:SVS) Aren't Growing

If you're looking for a multi-bagger, there's a few things to 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Svas Biosana (BIT:SVS) 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?

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 Svas Biosana is:

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

0.083 = €7.4m ÷ (€148m - €60m) (Based on the trailing twelve months to June 2023).

Thus, Svas Biosana has an ROCE of 8.3%. On its own, that's a low figure but it's around the 9.1% average generated by the Medical Equipment industry.

View our latest analysis for Svas Biosana

Above you can see how the current ROCE for Svas Biosana 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 Svas Biosana here for free.

The Trend Of ROCE

The returns on capital haven't changed much for Svas Biosana in recent years. The company has employed 43% more capital in the last two years, and the returns on that capital have remained stable at 8.3%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Another thing to note, Svas Biosana has a high ratio of current liabilities to total assets of 40%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Svas Biosana's ROCE

Long story short, while Svas Biosana has been reinvesting its capital, the returns that it's generating haven't increased. And in the last year, the stock has given away 15% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 2 warning signs with Svas Biosana (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While Svas Biosana 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.