Returns Are Gaining Momentum At SELVAS Healthcare (KOSDAQ:208370)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, SELVAS Healthcare (KOSDAQ:208370) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for SELVAS Healthcare:

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

0.026 = ₩1.6b ÷ (₩74b - ₩12b) (Based on the trailing twelve months to June 2024).

Thus, SELVAS Healthcare has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 8.4%.

Check out our latest analysis for SELVAS Healthcare

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

So How Is SELVAS Healthcare's ROCE Trending?

The fact that SELVAS Healthcare is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 2.6% on its capital. And unsurprisingly, like most companies trying to break into the black, SELVAS Healthcare is utilizing 209% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, SELVAS Healthcare has decreased current liabilities to 16% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On SELVAS Healthcare's ROCE

Overall, SELVAS Healthcare gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 149% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if SELVAS Healthcare can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 2 warning signs with SELVAS Healthcare (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

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.