Returns On Capital Are A Standout For Amedisys (NASDAQ:AMED)
What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So when we looked at the ROCE trend of Amedisys (NASDAQ:AMED) we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
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. Analysts use this formula to calculate it for Amedisys:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = US$268m ÷ (US$1.6b - US$449m) (Based on the trailing twelve months to June 2021).
Therefore, Amedisys has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 12%.
View our latest analysis for Amedisys
Above you can see how the current ROCE for Amedisys compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Does the ROCE Trend For Amedisys Tell Us?
Investors would be pleased with what's happening at Amedisys. The data shows that returns on capital have increased substantially over the last five years to 23%. Basically the business is earning more per dollar of capital invested and in addition to that, 121% more capital is being employed now too. So we're very much inspired by what we're seeing at Amedisys thanks to its ability to profitably reinvest capital.
The Bottom Line
To sum it up, Amedisys has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Amedisys can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing Amedisys, we've discovered 2 warning signs that you should be aware of.
Amedisys is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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