Returns On Capital At Onyx Healthcare (GTSM:6569) Paint A Concerning Picture

By
Simply Wall St
Published
March 24, 2021
TPEX:6569

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. 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. However, after investigating Onyx Healthcare (GTSM:6569), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Onyx Healthcare, this is the formula:

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

0.14 = NT$161m ÷ (NT$1.4b - NT$279m) (Based on the trailing twelve months to December 2020).

Thus, Onyx Healthcare has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Healthcare Services industry.

View our latest analysis for Onyx Healthcare

roce
GTSM:6569 Return on Capital Employed March 25th 2021

In the above chart we have measured Onyx Healthcare's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Onyx Healthcare.

So How Is Onyx Healthcare's ROCE Trending?

When we looked at the ROCE trend at Onyx Healthcare, we didn't gain much confidence. To be more specific, ROCE has fallen from 41% 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Onyx Healthcare's ROCE

In summary, Onyx Healthcare is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 40% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to continue researching Onyx Healthcare, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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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