Medimaging Integrated Solution (TWSE:6796) Could Be Struggling To Allocate Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Medimaging Integrated Solution (TWSE:6796) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. Analysts use this formula to calculate it for Medimaging Integrated Solution:

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

0.078 = NT$92m ÷ (NT$1.3b - NT$163m) (Based on the trailing twelve months to December 2023).

So, Medimaging Integrated Solution has an ROCE of 7.8%. On its own, that's a low figure but it's around the 8.7% average generated by the Medical Equipment industry.

View our latest analysis for Medimaging Integrated Solution

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Medimaging Integrated Solution.

How Are Returns Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 16% five years ago, while the business's capital employed increased by 181%. Usually this isn't ideal, but given Medimaging Integrated Solution conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Medimaging Integrated Solution might not have received a full period of earnings contribution from it.

The Bottom Line

To conclude, we've found that Medimaging Integrated Solution is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 63% over the last three years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we found 4 warning signs for Medimaging Integrated Solution (1 is potentially serious) you should be aware of.

While Medimaging Integrated Solution may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.