There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Q & M Dental Group (Singapore) (SGX:QC7) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Q & M Dental Group (Singapore), this is the formula:

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

0.086 = S$20m ÷ (S$260m - S$31m) (Based on the trailing twelve months to June 2023).

Therefore, Q & M Dental Group (Singapore) has an ROCE of 8.6%. In absolute terms, that's a low return but it's around the Healthcare industry average of 9.6%.

Check out our latest analysis for Q & M Dental Group (Singapore)

Above you can see how the current ROCE for Q & M Dental Group (Singapore) compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Q & M Dental Group (Singapore) here for free.

What The Trend Of ROCE Can Tell Us

Q & M Dental Group (Singapore) 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 53% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

To sum it up, Q & M Dental Group (Singapore) is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 36% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Q & M Dental Group (Singapore) does come with some risks, and we've found 4 warning signs that you should be aware of.

While Q & M Dental Group (Singapore) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.