Gesundheitswelt Chiemgau (MUN:JTH) Is Experiencing Growth In Returns On Capital

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, we've noticed some promising trends at Gesundheitswelt Chiemgau (MUN:JTH) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Gesundheitswelt Chiemgau:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.066 = €4.4m ÷ (€77m - €10m) (Based on the trailing twelve months to December 2022).

Thus, Gesundheitswelt Chiemgau has an ROCE of 6.6%. In absolute terms, that's a low return but it's around the Healthcare industry average of 6.0%.

View our latest analysis for Gesundheitswelt Chiemgau

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Historical performance is a great place to start when researching a stock so above you can see the gauge for Gesundheitswelt Chiemgau's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Gesundheitswelt Chiemgau.

How Are Returns Trending?

Gesundheitswelt Chiemgau is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 44% 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Gesundheitswelt Chiemgau's ROCE

As discussed above, Gesundheitswelt Chiemgau appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 50% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Gesundheitswelt Chiemgau can keep these trends up, it could have a bright future ahead.

Gesundheitswelt Chiemgau does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While Gesundheitswelt Chiemgau may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.