EMC Instytut Medyczny (WSE:EMC) Is Looking To Continue Growing Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, EMC Instytut Medyczny (WSE:EMC) looks quite promising in regards to its trends of return on capital.

Understanding 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. The formula for this calculation on EMC Instytut Medyczny is:

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

0.0083 = zł2.2m ÷ (zł382m - zł112m) (Based on the trailing twelve months to December 2020).

So, EMC Instytut Medyczny has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 15%.

Check out our latest analysis for EMC Instytut Medyczny

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

What Can We Tell From EMC Instytut Medyczny's ROCE Trend?

The fact that EMC Instytut Medyczny 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 0.8% on its capital. And unsurprisingly, like most companies trying to break into the black, EMC Instytut Medyczny is utilizing 38% 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.

The Key Takeaway

Long story short, we're delighted to see that EMC Instytut Medyczny's reinvestment activities have paid off and the company is now profitable. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for EMC Instytut Medyczny you'll probably want to know about.

While EMC Instytut Medyczny 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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