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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at LIMES Schlosskliniken (ETR:LIK) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for LIMES Schlosskliniken, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = €5.4m ÷ (€33m - €4.4m) (Based on the trailing twelve months to June 2024).
Thus, LIMES Schlosskliniken has an ROCE of 19%. 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're interested, you can view the analysts predictions in our free analyst report for LIMES Schlosskliniken .
What Can We Tell From LIMES Schlosskliniken's ROCE Trend?
LIMES Schlosskliniken has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 19% on its capital. Not only that, but the company is utilizing 1,256% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
One more thing to note, LIMES Schlosskliniken has decreased current liabilities to 13% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that LIMES Schlosskliniken has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
Our Take On LIMES Schlosskliniken's ROCE
In summary, it's great to see that LIMES Schlosskliniken has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.