Returns On Capital At Concord Medical (GTSM:6518) Paint An Interesting Picture

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. 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 investigating Concord Medical (GTSM:6518), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Concord Medical:

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

0.041 = NT$33m ÷ (NT$1.1b - NT$257m) (Based on the trailing twelve months to June 2020).

Therefore, Concord Medical has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 8.5%.

See our latest analysis for Concord Medical

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Concord Medical's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Concord Medical's ROCE Trending?

On the surface, the trend of ROCE at Concord Medical doesn't inspire confidence. To be more specific, ROCE has fallen from 8.0% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Concord Medical's ROCE

To conclude, we've found that Concord Medical is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 49% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 3 warning signs with Concord Medical (at least 1 which can't be ignored) , and understanding them would certainly be useful.

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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This article by Simply Wall St is general in nature. 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.
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