What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Econ Healthcare (Asia) (Catalist:EHG) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is 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. Analysts use this formula to calculate it for Econ Healthcare (Asia):

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

0.066 = S$5.3m ÷ (S$99m - S$19m) (Based on the trailing twelve months to March 2023).

Therefore, Econ Healthcare (Asia) has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 8.6%.

Check out our latest analysis for Econ Healthcare (Asia)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Econ Healthcare (Asia)'s ROCE against it's prior returns. If you'd like to look at how Econ Healthcare (Asia) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Econ Healthcare (Asia) Tell Us?

On the surface, the trend of ROCE at Econ Healthcare (Asia) doesn't inspire confidence. Around three years ago the returns on capital were 11%, but since then they've fallen to 6.6%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Econ Healthcare (Asia)'s ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Econ Healthcare (Asia) is reinvesting for growth and has higher sales as a result. However, total returns to shareholders over the last year have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

On a separate note, we've found 3 warning signs for Econ Healthcare (Asia) you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.