Med Life (BVB:M) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 when we looked at Med Life (BVB:M) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Med Life, this is the formula:

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

0.19 = RON189m ÷ (RON1.4b - RON410m) (Based on the trailing twelve months to September 2021).

So, Med Life has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Healthcare industry.

See our latest analysis for Med Life

In the above chart we have measured Med Life's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Med Life.

How Are Returns Trending?

We like the trends that we're seeing from Med Life. Over the last five years, returns on capital employed have risen substantially to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 225% more capital is being employed now too. So we're very much inspired by what we're seeing at Med Life thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Med Life is reaping the rewards from prior investments and is growing its capital base. And a remarkable 504% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Med Life can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Med Life that we think you should be aware of.

While Med Life 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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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.