Here's What To Make Of ICARES Medicus' (GTSM:6612) Returns On Capital

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at ICARES Medicus' (GTSM:6612) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on ICARES Medicus is:

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

0.12 = NT$95m ÷ (NT$841m - NT$75m) (Based on the trailing twelve months to September 2020).

Thus, ICARES Medicus has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

View our latest analysis for ICARES Medicus

In the above chart we have measured ICARES Medicus' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering ICARES Medicus here for free.

So How Is ICARES Medicus' ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 355% in that time. 12% is a pretty standard return, and it provides some comfort knowing that ICARES Medicus has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

In the end, ICARES Medicus has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 22% over the last three years for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

Like most companies, ICARES Medicus does come with some risks, and we've found 1 warning sign that 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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