Returns At AsiaMedic (Catalist:505) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at AsiaMedic (Catalist:505) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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 AsiaMedic is:

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

0.029 = S$632k ÷ (S$29m - S$6.8m) (Based on the trailing twelve months to December 2023).

So, AsiaMedic has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 6.9%.

View our latest analysis for AsiaMedic

Historical performance is a great place to start when researching a stock so above you can see the gauge for AsiaMedic's ROCE against it's prior returns. If you're interested in investigating AsiaMedic's past further, check out this free graph covering AsiaMedic's past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that AsiaMedic is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 2.9% on its capital. And unsurprisingly, like most companies trying to break into the black, AsiaMedic is utilizing 176% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 24%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that AsiaMedic has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On AsiaMedic's ROCE

Long story short, we're delighted to see that AsiaMedic's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 27% 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 more thing: We've identified 4 warning signs with AsiaMedic (at least 2 which make us uncomfortable) , and understanding them would certainly be useful.

While AsiaMedic 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.