The Return Trends At Community Health Systems (NYSE:CYH) Look Promising

Simply Wall St
Updated 3 min read
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So on that note, Community Health Systems (NYSE:CYH) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Community Health Systems is:

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

0.058 = US$719m ÷ (US$15b - US$2.2b) (Based on the trailing twelve months to December 2022).

So, Community Health Systems has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 9.4%.

Check out our latest analysis for Community Health Systems

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roce

In the above chart we have measured Community Health Systems' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Community Health Systems here for free.

So How Is Community Health Systems' ROCE Trending?

Community Health Systems' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 302% 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Community Health Systems' ROCE

To bring it all together, Community Health Systems has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 30% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One final note, you should learn about the 5 warning signs we've spotted with Community Health Systems (including 3 which are potentially serious) .

While Community Health Systems isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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