U.S. markets closed
  • S&P 500

    4,128.80
    +31.63 (+0.77%)
     
  • Dow 30

    33,800.60
    +297.03 (+0.89%)
     
  • Nasdaq

    13,900.19
    +70.88 (+0.51%)
     
  • Russell 2000

    2,243.47
    +0.88 (+0.04%)
     
  • Crude Oil

    59.34
    -0.26 (-0.44%)
     
  • Gold

    1,744.10
    -14.10 (-0.80%)
     
  • Silver

    25.33
    -0.26 (-1.02%)
     
  • EUR/USD

    1.1905
    -0.0016 (-0.13%)
     
  • 10-Yr Bond

    1.6660
    +0.0340 (+2.08%)
     
  • GBP/USD

    1.3707
    -0.0028 (-0.20%)
     
  • USD/JPY

    109.6300
    +0.3660 (+0.33%)
     
  • BTC-USD

    59,693.59
    -1,023.71 (-1.69%)
     
  • CMC Crypto 200

    1,235.89
    +8.34 (+0.68%)
     
  • FTSE 100

    6,915.75
    -26.47 (-0.38%)
     
  • Nikkei 225

    29,768.06
    +59.08 (+0.20%)
     

We're Watching These Trends At Universal Health Services (NYSE:UHS)

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
Simply Wall St
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Universal Health Services' (NYSE:UHS) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Universal Health Services, this is the formula:

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

0.13 = US$1.4b ÷ (US$13b - US$2.6b) (Based on the trailing twelve months to September 2020).

Therefore, Universal Health Services has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10.0% generated by the Healthcare industry.

View our latest analysis for Universal Health Services

roce
roce

Above you can see how the current ROCE for Universal Health Services 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 report for Universal Health Services.

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has employed 29% more capital in the last five years, and the returns on that capital have remained stable at 13%. 13% is a pretty standard return, and it provides some comfort knowing that Universal Health Services has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

The main thing to remember is that Universal Health Services has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 21% return to shareholders who held over that period. So to determine if Universal Health Services is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you'd like to know about the risks facing Universal Health Services, we've discovered 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

This article by Simply Wall St is general in nature. 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.

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