CompuGroup Medical SE KGaA (ETR: COP) returns on capital do not inspire confidence



If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. Among other things, we’ll want to see two things; first, a growth return on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. Put simply, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. That said, from the first glance at CompuGroup Medical SE KGaA (ETR: COP) We are not jumping from our chairs on the yield trend, but taking a closer look.

What is Return on Employee Capital (ROCE)?

For those who don’t know what ROCE is, it measures the amount of pre-tax profit a business can generate from the capital employed in its business. To calculate this metric for CompuGroup Medical SE KGaA, here is the formula:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.093 = € 114m ÷ (€ 1.6bn – € 387m) (Based on the last twelve months up to March 2021).

Therefore, CompuGroup Medical SE KGaA has a ROCE of 9.3%. On its own, this is a low return on capital, but it is in line with industry average returns of 9.3%.

Check out our latest review for CompuGroup Medical SE KGaA

XTRA: COP Return on Capital Employee July 20, 2021

Above you can see how CompuGroup Medical SE KGaA’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.

The ROCE trend

We weren’t thrilled with the trend as CompuGroup Medical SE KGaA’s ROCE declined 27% over the past five years, while the company employed 107% more capital. However, part of the increase in capital employed could be attributed to the recent fundraising that took place before their last reporting period, so keep that in mind when looking at the decline in ROCE. It is unlikely that all the funds raised have been used yet. Therefore, CompuGroup Medical SE KGaA may not have received a full period of income contribution from it.

The bottom line

Although returns on capital have declined in the short term, we find promise that both income and capital employed have increased for CompuGroup Medical SE KGaA. In addition, the stock has climbed 75% in the past five years, it seems investors are optimistic about the future. So while the underlying trends can already be explained by investors, we still believe this stock is worth looking into.

Like most companies, CompuGroup Medical SE KGaA comes with certain risks, and we have found 1 warning sign that you need to be aware of.

While CompuGroup Medical SE KGaA does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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