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. Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, the ROCE of MD Medical Group Investments (LON:MDMG) looks great, so lets see what the trend can tell us.
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 MD Medical Group Investments is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.24 = ₽6.6b ÷ (₽34b – ₽6.4b) (Based on the trailing twelve months to December 2021).
Thus, MD Medical Group Investments has an ROCE of 24%. That’s a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.
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’d like to look at how MD Medical Group Investments has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
MD Medical Group Investments is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 24%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 81%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that’s why we’re impressed.
Our Take On MD Medical Group Investments’ ROCE
To sum it up, MD Medical Group Investments has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 33% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.
One final note, you should learn about the 2 warning signs we’ve spotted with MD Medical Group Investments (including 1 which shouldn’t be ignored) .
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
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