SELVAS Healthcare (KOSDAQ:208370) Is Looking To Continue Growing Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at SELVAS Healthcare (KOSDAQ:208370) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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

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

0.047 = ₩2.9b ÷ (₩73b - ₩11b) (Based on the trailing twelve months to March 2024).

Thus, SELVAS Healthcare has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 9.8%.

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

What Does the ROCE Trend For SELVAS Healthcare Tell Us?

We're delighted to see that SELVAS Healthcare is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 4.7% on its capital. And unsurprisingly, like most companies trying to break into the black, SELVAS Healthcare is utilizing 226% 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 16%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

In summary, it's great to see that SELVAS Healthcare has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 180% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 2 warning signs for SELVAS Healthcare you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.