Is There More Growth In Store For Centrum Medyczne ENEL-MED's (WSE:ENE) Returns On Capital?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Centrum Medyczne ENEL-MED (WSE:ENE) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Centrum Medyczne ENEL-MED:

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

0.05 = zł15m ÷ (zł405m - zł100m) (Based on the trailing twelve months to September 2020).

So, Centrum Medyczne ENEL-MED has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 13%.

See our latest analysis for Centrum Medyczne ENEL-MED

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're interested in investigating Centrum Medyczne ENEL-MED's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that Centrum Medyczne ENEL-MED is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 5.0% which is a sight for sore eyes. In addition to that, Centrum Medyczne ENEL-MED is employing 138% more capital than previously which is expected of a company that's trying to break into profitability. 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

Overall, Centrum Medyczne ENEL-MED gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with a respectable 69% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Centrum Medyczne ENEL-MED does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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