Yahoo Finance There's Been No Shortage Of Growth Recently For Anthem's (NYSE:ANTM) Returns On Capital
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. Speaking of which, we noticed some great changes in Anthem's (NYSE:ANTM) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Anthem:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$9.1b ÷ (US$100b - US$40b) (Based on the trailing twelve months to March 2022).
Therefore, Anthem has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Healthcare industry.
View our latest analysis for Anthem
In the above chart we have measured Anthem'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 Anthem here for free.
So How Is Anthem's ROCE Trending?
The trends we've noticed at Anthem are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 15%. The amount of capital employed has increased too, by 33%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
In Conclusion...
To sum it up, Anthem has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 198% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Anthem can keep these trends up, it could have a bright future ahead.
One more thing to note, we've identified 1 warning sign with Anthem and understanding it should be part of your investment process.
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.
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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.
