In This Article:
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Q & M Dental Group (Singapore)'s (SGX:QC7) returns on capital, so let's have a look.
What Is 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 Q & M Dental Group (Singapore) is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = S$24m ÷ (S$253m - S$29m) (Based on the trailing twelve months to June 2024).
Thus, Q & M Dental Group (Singapore) has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 7.7% it's much better.
Check out our latest analysis for Q & M Dental Group (Singapore)
In the above chart we have measured Q & M Dental Group (Singapore)'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 analyst report for Q & M Dental Group (Singapore) .
How Are Returns Trending?
Q & M Dental Group (Singapore) has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 80% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
Our Take On Q & M Dental Group (Singapore)'s ROCE
As discussed above, Q & M Dental Group (Singapore) appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And since the stock has fallen 15% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.