Returns On Capital Are Showing Encouraging Signs At Acadia Healthcare Company (NASDAQ:ACHC)
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Acadia Healthcare Company (NASDAQ:ACHC) looks quite promising in regards to its trends of return on capital.
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 Acadia Healthcare Company, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = US$523m ÷ (US$5.5b - US$482m) (Based on the trailing twelve months to March 2024).
Therefore, Acadia Healthcare Company has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 11% generated by the Healthcare industry.
See our latest analysis for Acadia Healthcare Company
In the above chart we have measured Acadia Healthcare Company's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Acadia Healthcare Company for free.
What The Trend Of ROCE Can Tell Us
We're pretty happy with how the ROCE has been trending at Acadia Healthcare Company. We found that the returns on capital employed over the last five years have risen by 64%. The company is now earning US$0.1 per dollar of capital employed. In regards to capital employed, Acadia Healthcare Company appears to been achieving more with less, since the business is using 21% less capital to run its operation. Acadia Healthcare Company may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
Our Take On Acadia Healthcare Company's ROCE
From what we've seen above, Acadia Healthcare Company has managed to increase it's returns on capital all the while reducing it's capital base. And a remarkable 110% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
Acadia Healthcare Company does have some risks though, and we've spotted 1 warning sign for Acadia Healthcare Company that you might be interested in.
While Acadia Healthcare Company 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.
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