Here’s What’s Happening With Returns At EMC Instytut Medyczny (WSE:EMC)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in EMC Instytut Medyczny's (WSE:EMC) returns on capital, so let's have a look.

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 EMC Instytut Medyczny:

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

0.0073 = zł2.0m ÷ (zł386m - zł108m) (Based on the trailing twelve months to September 2020).

So, EMC Instytut Medyczny has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 9.6%.

See our latest analysis for EMC Instytut Medyczny

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how EMC Instytut Medyczny has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The fact that EMC Instytut Medyczny is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.7% on its capital. Not only that, but the company is utilizing 46% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From EMC Instytut Medyczny's ROCE

Long story short, we're delighted to see that EMC Instytut Medyczny's reinvestment activities have paid off and the company is now profitable. Since the stock has only returned 1.8% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One final note, you should learn about the 4 warning signs we've spotted with EMC Instytut Medyczny (including 2 which is can't be ignored) .

While EMC Instytut Medyczny isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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