U.S. Markets closed
  • S&P Futures

    3,435.50
    +12.75 (+0.37%)
     
  • Dow Futures

    28,207.00
    +107.00 (+0.38%)
     
  • Nasdaq Futures

    11,696.75
    +46.50 (+0.40%)
     
  • Russell 2000 Futures

    1,618.80
    +7.50 (+0.47%)
     
  • Crude Oil

    40.57
    -0.26 (-0.64%)
     
  • Gold

    1,906.50
    -5.20 (-0.27%)
     
  • Silver

    24.59
    -0.11 (-0.44%)
     
  • EUR/USD

    1.1777
    +0.0004 (+0.0353%)
     
  • 10-Yr Bond

    0.7610
    +0.0170 (+2.28%)
     
  • Vix

    29.18
    +1.77 (+6.46%)
     
  • GBP/USD

    1.2943
    +0.0003 (+0.0220%)
     
  • USD/JPY

    105.5300
    +0.1000 (+0.0948%)
     
  • BTC-USD

    11,699.43
    +642.42 (+5.81%)
     
  • CMC Crypto 200

    238.27
    +4.60 (+1.97%)
     
  • FTSE 100

    5,884.65
    -34.93 (-0.59%)
     
  • Nikkei 225

    23,652.98
    -18.15 (-0.08%)
     

How Do Apollo Medical Holdings, Inc.’s (NASDAQ:AMEH) Returns Compare To Its Industry?

Simply Wall St

Today we'll look at Apollo Medical Holdings, Inc. (NASDAQ:AMEH) and reflect on its potential as an investment. Specifically, we're going to calculate its Return On Capital Employed (ROCE), in the hopes of getting some insight into the business.

First up, we'll look at what ROCE is and how we calculate it. Second, we'll look at its ROCE compared to similar companies. And finally, we'll look at how its current liabilities are impacting its ROCE.

Return On Capital Employed (ROCE): What is it?

ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. All else being equal, a better business will have a higher ROCE. In brief, it is a useful tool, but it is not without drawbacks. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.

So, How Do We Calculate ROCE?

The formula for calculating the return on capital employed is:

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

Or for Apollo Medical Holdings:

0.047 = US$30m ÷ (US$750m - US$105m) (Based on the trailing twelve months to September 2019.)

So, Apollo Medical Holdings has an ROCE of 4.7%.

See our latest analysis for Apollo Medical Holdings

Does Apollo Medical Holdings Have A Good ROCE?

ROCE can be useful when making comparisons, such as between similar companies. We can see Apollo Medical Holdings's ROCE is meaningfully below the Healthcare industry average of 11%. This performance could be negative if sustained, as it suggests the business may underperform its industry. Independently of how Apollo Medical Holdings compares to its industry, its ROCE in absolute terms is low; especially compared to the ~1.7% available in government bonds. Readers may wish to look for more rewarding investments.

We can see that, Apollo Medical Holdings currently has an ROCE of 4.7%, less than the 6.7% it reported 3 years ago. This makes us wonder if the business is facing new challenges. The image below shows how Apollo Medical Holdings's ROCE compares to its industry, and you can click it to see more detail on its past growth.

NasdaqCM:AMEH Past Revenue and Net Income, December 30th 2019
NasdaqCM:AMEH Past Revenue and Net Income, December 30th 2019

Remember that this metric is backwards looking - it shows what has happened in the past, and does not accurately predict the future. ROCE can be misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. What happens in the future is pretty important for investors, so we have prepared a free report on analyst forecasts for Apollo Medical Holdings.

What Are Current Liabilities, And How Do They Affect Apollo Medical Holdings's ROCE?

Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To counter this, investors can check if a company has high current liabilities relative to total assets.

Apollo Medical Holdings has total assets of US$750m and current liabilities of US$105m. Therefore its current liabilities are equivalent to approximately 14% of its total assets. This is a modest level of current liabilities, which will have a limited impact on the ROCE.

The Bottom Line On Apollo Medical Holdings's ROCE

Apollo Medical Holdings has a poor ROCE, and there may be better investment prospects out there. You might be able to find a better investment than Apollo Medical Holdings. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.