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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at LIMES Schlosskliniken (ETR:LIK) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on LIMES Schlosskliniken is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = €5.0m ÷ (€33m - €4.4m) (Based on the trailing twelve months to December 2023).
So, LIMES Schlosskliniken has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 5.5% it's much better.
Check out our latest analysis for LIMES Schlosskliniken
Above you can see how the current ROCE for LIMES Schlosskliniken compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering LIMES Schlosskliniken for free.
What Does the ROCE Trend For LIMES Schlosskliniken Tell Us?
LIMES Schlosskliniken has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 17% which is a sight for sore eyes. In addition to that, LIMES Schlosskliniken is employing 219% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
Our Take On LIMES Schlosskliniken's ROCE
Overall, LIMES Schlosskliniken gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 304% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you'd like to know more about LIMES Schlosskliniken, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.