Returns On Capital Are A Standout For Sensus Healthcare (NASDAQ:SRTS)
There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Speaking of which, we noticed some great changes in Sensus Healthcare's (NASDAQ:SRTS) returns on capital, so let's have a look.
Understanding 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. Analysts use this formula to calculate it for Sensus Healthcare:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.30 = US$15m ÷ (US$57m - US$7.7m) (Based on the trailing twelve months to December 2022).
Thus, Sensus Healthcare has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 9.9% earned by companies in a similar industry.
View our latest analysis for Sensus Healthcare
Above you can see how the current ROCE for Sensus Healthcare 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.
So How Is Sensus Healthcare's ROCE Trending?
Sensus Healthcare has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 30% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Sensus Healthcare is utilizing 251% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 14%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
The Bottom Line On Sensus Healthcare's ROCE
Overall, Sensus Healthcare 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 14% in the last five years, 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.
If you want to know some of the risks facing Sensus Healthcare we've found 3 warning signs (2 are a bit concerning!) that you should be aware of before investing here.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.
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