Investors Met With Slowing Returns on Capital At Andlauer Healthcare Group (TSE:AND)
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Andlauer Healthcare Group (TSE:AND) looks decent, right now, so lets see what the trend of returns can tell us.
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 Andlauer Healthcare Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = CA$74m ÷ (CA$644m - CA$91m) (Based on the trailing twelve months to December 2021).
Therefore, Andlauer Healthcare Group has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 8.2% it's much better.
Check out our latest analysis for Andlauer Healthcare Group
In the above chart we have measured Andlauer Healthcare Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Andlauer Healthcare Group.
What Can We Tell From Andlauer Healthcare Group's ROCE Trend?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 153% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
What We Can Learn From Andlauer Healthcare Group's ROCE
The main thing to remember is that Andlauer Healthcare Group has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 32% return if they held over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
If you want to continue researching Andlauer Healthcare Group, you might be interested to know about the 3 warning signs that our analysis has discovered.
While Andlauer Healthcare Group 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.
