Returns Are Gaining Momentum At Spire Healthcare Group (LON:SPI)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Spire Healthcare Group (LON:SPI) and its trend of ROCE, we really liked what we saw.

Understanding 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. The formula for this calculation on Spire Healthcare Group is:

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

0.064 = UK£127m ÷ (UK£2.3b - UK£318m) (Based on the trailing twelve months to December 2023).

So, Spire Healthcare Group has an ROCE of 6.4%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 8.2%.

See our latest analysis for Spire Healthcare Group

In the above chart we have measured Spire Healthcare Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Spire Healthcare Group .

What Can We Tell From Spire Healthcare Group's ROCE Trend?

Spire Healthcare Group has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 40% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Spire Healthcare Group's ROCE

To bring it all together, Spire Healthcare Group has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 102% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Spire Healthcare Group can keep these trends up, it could have a bright future ahead.

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

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.

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