Slowing Rates Of Return At Raffles Medical Group (SGX:BSL) Leave Little Room For Excitement

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Raffles Medical Group (SGX:BSL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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What Is 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. Analysts use this formula to calculate it for Raffles Medical Group:

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

0.074 = S$85m ÷ (S$1.5b - S$382m) (Based on the trailing twelve months to December 2024).

Thus, Raffles Medical Group has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 11%.

See our latest analysis for Raffles Medical Group

Above you can see how the current ROCE for Raffles Medical Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Raffles Medical Group .

So How Is Raffles Medical Group's ROCE Trending?

There hasn't been much to report for Raffles Medical Group's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Raffles Medical Group doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Raffles Medical Group has been paying out a decent 55% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line On Raffles Medical Group's ROCE

In a nutshell, Raffles Medical Group has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 22% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Raffles Medical Group does have some risks though, and we've spotted 1 warning sign for Raffles Medical Group that you might be interested in.

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.