There are a few key trends to look out for if we want to identify the next multi-bagger. Among other things, we will want to see two things; first, growth to return to 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. With this in mind, the ROCE of Health HCA (NYSE:HCA) looks attractive right now, so let’s see what the yield trend can tell us.
Return on capital employed (ROCE): what is it?
For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. Analysts use this formula to calculate it for HCA Healthcare:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.24 = $9.7 billion ÷ ($50 billion – $9.6 billion) (Based on the last twelve months to September 2021).
So, HCA Healthcare posts a ROCE of 24%. In absolute terms, this is an excellent performance and even better than the healthcare industry average of 12%.
Check out our latest analysis for HCA Healthcare
In the chart above, we measured HCA Healthcare’s past ROCE against its past performance, but the future is arguably more important. If you want to see what analysts are predicting for the future, you should check out our free report for HCA Healthcare.
What does the ROCE trend tell us for HCA Healthcare?
In terms of HCA Healthcare’s ROCE history, that’s pretty impressive. The company has consistently gained 24% over the past five years and the capital employed within the company has increased by 43% over this period. 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.
HCA Healthcare has a proven track record of delivering high returns on increasing amounts of capital employed, which we are delighted with. On top of that, the stock has rewarded shareholders with a remarkable return of 225% for those who have held it over the past five years. So while the positive underlying trends can be explained by investors, we still think this stock deserves further investigation.
HCA Healthcare has some risks, we noticed 3 warning signs (and 2 that are a bit nasty) that we think you should know about.
High yields are a key ingredient to strong performance, so check out our free list of stocks generating high returns on equity with strong balance sheets.
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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.