Investors Shouldn't Overlook Médica Sur. de's (BMV:MEDICAB) Impressive Returns On Capital

By
Simply Wall St
Published
June 07, 2021
BMV:MEDICA B
Source: Shutterstock

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. And in light of that, the trends we're seeing at Médica Sur. de's (BMV:MEDICAB) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Médica Sur. de, this is the formula:

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

0.23 = Mex$1.2b ÷ (Mex$6.5b - Mex$1.0b) (Based on the trailing twelve months to March 2021).

Thus, Médica Sur. de has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

See our latest analysis for Médica Sur. de

roce
BMV:MEDICA B Return on Capital Employed June 7th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Médica Sur. de's ROCE against it's prior returns. If you'd like to look at how Médica Sur. de has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The trends we've noticed at Médica Sur. de are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 23%. The amount of capital employed has increased too, by 58%. So we're very much inspired by what we're seeing at Médica Sur. de thanks to its ability to profitably reinvest capital.

Our Take On Médica Sur. de's ROCE

In summary, it's great to see that Médica Sur. de can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Astute investors may have an opportunity here because the stock has declined 20% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Médica Sur. de does have some risks though, and we've spotted 1 warning sign for Médica Sur. de that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. 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.
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