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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in RHÖN-KLINIKUM's (ETR:RHK) returns on capital, so let's have a look.
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Understanding 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. The formula for this calculation on RHÖN-KLINIKUM is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.032 = €47m ÷ (€1.9b - €405m) (Based on the trailing twelve months to December 2024).
Therefore, RHÖN-KLINIKUM has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 5.3%.
View our latest analysis for RHÖN-KLINIKUM
Above you can see how the current ROCE for RHÖN-KLINIKUM compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for RHÖN-KLINIKUM .
What Can We Tell From RHÖN-KLINIKUM's ROCE Trend?
While there are companies with higher returns on capital out there, we still find the trend at RHÖN-KLINIKUM promising. The figures show that over the last five years, ROCE has grown 152% whilst employing roughly the same amount of capital. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line On RHÖN-KLINIKUM's ROCE
To bring it all together, RHÖN-KLINIKUM has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 15% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for RHK on our platform that is definitely worth checking out.