GE HealthCare Technologies (NASDAQ:GEHC) Hasn't Managed To Accelerate Its Returns
There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over GE HealthCare Technologies' (NASDAQ:GEHC) trend of ROCE, we liked what we saw.
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 GE HealthCare Technologies, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = US$2.9b ÷ (US$32b - US$8.9b) (Based on the trailing twelve months to March 2024).
Thus, GE HealthCare Technologies has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 10% generated by the Medical Equipment industry.
Check out our latest analysis for GE HealthCare Technologies
Above you can see how the current ROCE for GE HealthCare Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering GE HealthCare Technologies for free.
The Trend Of ROCE
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 29% more capital in the last three years, and the returns on that capital have remained stable at 12%. 12% is a pretty standard return, and it provides some comfort knowing that GE HealthCare Technologies 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 GE HealthCare Technologies has proven its ability to continually reinvest at respectable rates of return. However, over the last year, the stock hasn't provided much growth to shareholders in the way of total returns. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.
If you'd like to know about the risks facing GE HealthCare Technologies, we've discovered 1 warning sign that you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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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