Should You Invest In Farmaceutica REMEDIA (BVB:RMAH)?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Farmaceutica REMEDIA (BVB:RMAH) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Farmaceutica REMEDIA is:

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

0.49 = RON38m ÷ (RON241m - RON163m) (Based on the trailing twelve months to September 2020).

Thus, Farmaceutica REMEDIA has an ROCE of 49%. That's a fantastic return and not only that, it outpaces the average of 9.6% earned by companies in a similar industry.

View our latest analysis for Farmaceutica REMEDIA

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

What Does the ROCE Trend For Farmaceutica REMEDIA Tell Us?

Farmaceutica REMEDIA is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 49%. Basically the business is earning more per dollar of capital invested and in addition to that, 89% more capital is being employed now too. So we're very much inspired by what we're seeing at Farmaceutica REMEDIA thanks to its ability to profitably reinvest capital.

On a side note, Farmaceutica REMEDIA's current liabilities are still rather high at 68% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

In summary, it's great to see that Farmaceutica REMEDIA 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. Since the stock has returned a staggering 198% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Farmaceutica REMEDIA and understanding it should be part of your investment process.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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