dentalcorp Holdings (TSE:DNTL) Shareholders Will Want The ROCE Trajectory To Continue
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in dentalcorp Holdings' (TSE:DNTL) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on dentalcorp Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.00064 = CA$2.0m ÷ (CA$3.3b - CA$189m) (Based on the trailing twelve months to September 2023).
Therefore, dentalcorp Holdings has an ROCE of 0.06%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 11%.
Check out our latest analysis for dentalcorp Holdings
Above you can see how the current ROCE for dentalcorp Holdings 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 dentalcorp Holdings for free.
What Does the ROCE Trend For dentalcorp Holdings Tell Us?
The fact that dentalcorp Holdings is now generating some pre-tax profits from its prior investments is very encouraging. About three years ago the company was generating losses but things have turned around because it's now earning 0.06% on its capital. In addition to that, dentalcorp Holdings is employing 31% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Key Takeaway
Long story short, we're delighted to see that dentalcorp Holdings' reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 19% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
On a separate note, we've found 1 warning sign for dentalcorp Holdings you'll probably want to know about.
While dentalcorp Holdings 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.
