Stock Analysis

What Do The Returns On Capital At MedFirst Healthcare Services (GTSM:4175) Tell Us?

TPEX:4175
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What are the early trends we should look for to identify a stock that could 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at MedFirst Healthcare Services (GTSM:4175) and its ROCE trend, we weren't exactly thrilled.

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

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 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).

Thus, 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%.

Check out our latest analysis for MedFirst Healthcare Services

roce
GTSM:4175 Return on Capital Employed February 22nd 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for MedFirst Healthcare Services' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of MedFirst Healthcare Services, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

In terms of MedFirst Healthcare Services' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 15% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On MedFirst Healthcare Services' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for MedFirst Healthcare Services. In light of this, the stock has only gained 15% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

On a final note, we've found 4 warning signs for MedFirst Healthcare Services that we think you should be aware of.

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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