Raffles Medical Group (SGX:BSL) Has Some Way To Go To Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. That's why when we briefly looked at Raffles Medical Group's (SGX:BSL) ROCE trend, we were pretty happy with 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 Raffles Medical Group is:

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

0.10 = S$118m ÷ (S$1.5b - S$417m) (Based on the trailing twelve months to December 2021).

Thus, Raffles Medical Group has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 10%.

See our latest analysis for Raffles Medical Group

In the above chart we have measured Raffles Medical Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Raffles Medical Group here for free.

What Can We Tell From Raffles Medical Group's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 58% in that time. 10% is a pretty standard return, and it provides some comfort knowing that Raffles Medical Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

To sum it up, Raffles Medical Group has simply been reinvesting capital steadily, at those decent rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last five years. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

If you're still interested in Raffles Medical Group it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Raffles Medical Group 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.