Investors Will Want dentalcorp Holdings' (TSE:DNTL) Growth In ROCE To Persist
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at dentalcorp Holdings (TSE:DNTL) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for dentalcorp Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.00022 = CA$700k ÷ (CA$3.4b - CA$176m) (Based on the trailing twelve months to June 2023).
So, dentalcorp Holdings has an ROCE of 0.02%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 6.3%.
View our latest analysis for dentalcorp Holdings
In the above chart we have measured dentalcorp Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
We're delighted to see that dentalcorp Holdings is reaping rewards from its investments and is now generating some pre-tax profits. About three years ago the company was generating losses but things have turned around because it's now earning 0.02% on its capital. And unsurprisingly, like most companies trying to break into the black, dentalcorp Holdings is utilizing 34% more capital than it was three years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
Our Take On dentalcorp Holdings' ROCE
Overall, dentalcorp Holdings gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Given the stock has declined 22% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
dentalcorp Holdings does have some risks though, and we've spotted 2 warning signs for dentalcorp Holdings that you might be interested in.
While dentalcorp Holdings 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.
