Returns On Capital Are Showing Encouraging Signs At Omda (OB:OMDA)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, we've noticed some promising trends at Omda (OB:OMDA) so let's look a bit deeper.

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 Omda is:

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

0.031 = kr18m ÷ (kr739m - kr174m) (Based on the trailing twelve months to June 2024).

Thus, Omda has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Healthcare Services industry average of 9.2%.

View our latest analysis for Omda

Above you can see how the current ROCE for Omda 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 Omda for free.

What Does the ROCE Trend For Omda Tell Us?

The fact that Omda 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 3.1% on its capital. In addition to that, Omda is employing 183% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 24%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Omda has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

Long story short, we're delighted to see that Omda's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 62% in the last three years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Omda does come with some risks though, we found 5 warning signs in our investment analysis, and 3 of those are a bit concerning...

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.