Capital investment trends at Chemed (NYSE:CHE) look solid

Did you know that there are financial metrics that can provide clues of a potential multi-bagger? Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. Therefore, when we looked at ROCE trends at Chemed (NYSE:CHE), we liked what we saw.

What is return on capital employed (ROCE)?

For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. To calculate this metric for Chemed, here is the formula:

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

0.36 = $373 million ÷ ($1.3 billion – $285 million) (Based on the last twelve months to June 2022).

Therefore, Chemed has a ROCE of 36%. This is a fantastic return and not only that, it exceeds the 10% average earned by companies in a similar industry.

Discover our latest analysis for Chemed

NYSE:CHE Return on Capital Employed September 16, 2022

Above, you can see how Chemed’s current ROCE compares to its past returns on capital, but you can’t tell much about the past. If you want to see what analysts predict for the future, you should check out our free report for Chemed.

What the ROCE trend can tell us

It’s hard not to be impressed with Chemed’s returns on capital. The company has employed 60% more capital over the past five years, and the return on that capital has remained stable at 36%. With such high returns, it’s great that the company can continually reinvest its money at such attractive rates of return. You will see this when you look at well-run businesses or favorable business models.

In conclusion…

In short, we would say that Chemed has the makings of a multi-bagger since it has been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable return of 157% for those who have held over the past five years. So while the positive underlying trends can be explained by investors, we still think this stock deserves further investigation.

If you want to know more about the risks that Chemed faces, we have discovered 1 warning sign of which you should be aware.

If you want to find more stocks that have generated high returns, check out this free list of stocks with strong balance sheets that also generate high returns on equity.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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