Here's What To Make Of Andlauer Healthcare Group's (TSE:AND) Decelerating Rates Of Return

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Andlauer Healthcare Group's (TSE:AND) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Andlauer Healthcare Group, this is the formula:

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

0.17 = CA$93m ÷ (CA$658m - CA$113m) (Based on the trailing twelve months to June 2024).

So, Andlauer Healthcare Group has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 13% it's much better.

See our latest analysis for Andlauer Healthcare Group

Above you can see how the current ROCE for Andlauer Healthcare Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Andlauer Healthcare Group .

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has employed 142% more capital in the last five years, and the returns on that capital have remained stable at 17%. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

Our Take On Andlauer Healthcare Group's ROCE

The main thing to remember is that Andlauer Healthcare Group has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 11% over the last three years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Like most companies, Andlauer Healthcare Group does come with some risks, and we've found 1 warning sign that you should be aware of.

While Andlauer Healthcare Group 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.