Returns On Capital Are Showing Encouraging Signs At dentalcorp Holdings (TSE:DNTL)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at dentalcorp Holdings (TSE:DNTL) so let's look a bit deeper.

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 dentalcorp Holdings, this is the formula:

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

0.00064 = CA$2.0m ÷ (CA$3.3b - CA$189m) (Based on the trailing twelve months to September 2023).

Therefore, dentalcorp Holdings has an ROCE of 0.06%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 10%.

Check out our latest analysis for dentalcorp Holdings

In the above chart we have measured dentalcorp Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for dentalcorp Holdings.

What Does the ROCE Trend For dentalcorp Holdings Tell Us?

We're delighted to see that dentalcorp Holdings is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses three years ago, but now it's earning 0.06% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, dentalcorp Holdings is utilizing 31% more capital than it was three years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In Conclusion...

In summary, it's great to see that dentalcorp Holdings has managed to break into profitability and is continuing to reinvest in its business. Given the stock has declined 29% in the last year, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing to note, we've identified 1 warning sign with dentalcorp Holdings and understanding this should be part of your investment process.

While dentalcorp Holdings 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.