Stock Analysis

The Returns At MedFirst Healthcare Services (GTSM:4175) Provide Us With Signs Of What's To Come

TPEX:4175
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Although, when we looked at MedFirst Healthcare Services (GTSM:4175), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on MedFirst Healthcare Services is:

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

0.051 = NT$144m ÷ (NT$5.3b - NT$2.5b) (Based on the trailing twelve months to September 2020).

So, MedFirst Healthcare Services has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 7.2%.

See our latest analysis for MedFirst Healthcare Services

roce
GTSM:4175 Return on Capital Employed November 20th 2020

Above you can see how the current ROCE for MedFirst Healthcare Services compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

On the surface, the trend of ROCE at MedFirst Healthcare Services doesn't inspire confidence. To be more specific, ROCE has fallen from 15% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, MedFirst Healthcare Services' current liabilities are still rather high at 47% 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 Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that MedFirst Healthcare Services is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 10% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you want to continue researching MedFirst Healthcare Services, you might be interested to know about the 4 warning signs that our analysis has discovered.

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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