The Returns On Capital At Viemed Healthcare (NASDAQ:VMD) Don't Inspire Confidence
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at Viemed Healthcare (NASDAQ:VMD), it didn't seem to tick all of these boxes.
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 Viemed Healthcare, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$13m ÷ (US$149m - US$32m) (Based on the trailing twelve months to September 2023).
So, Viemed Healthcare has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Healthcare industry average of 10.0%.
See our latest analysis for Viemed Healthcare
Above you can see how the current ROCE for Viemed Healthcare compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Viemed Healthcare .
What Does the ROCE Trend For Viemed Healthcare Tell Us?
When we looked at the ROCE trend at Viemed Healthcare, we didn't gain much confidence. To be more specific, ROCE has fallen from 24% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
The Bottom Line On Viemed Healthcare's ROCE
While returns have fallen for Viemed Healthcare in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 67% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.
Viemed Healthcare could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for VMD on our platform quite valuable.
While Viemed Healthcare 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.
