Apollo Hospitals Enterprise (NSE:APOLLOHOSP) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So when we looked at Apollo Hospitals Enterprise (NSE:APOLLOHOSP) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Apollo Hospitals Enterprise is:

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

0.13 = ₹14b ÷ (₹140b - ₹30b) (Based on the trailing twelve months to December 2022).

Therefore, Apollo Hospitals Enterprise has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.

See our latest analysis for Apollo Hospitals Enterprise

In the above chart we have measured Apollo Hospitals Enterprise'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 report on analyst forecasts for the company.

What Can We Tell From Apollo Hospitals Enterprise's ROCE Trend?

Investors would be pleased with what's happening at Apollo Hospitals Enterprise. Over the last five years, returns on capital employed have risen substantially to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 55% more capital is being employed now too. So we're very much inspired by what we're seeing at Apollo Hospitals Enterprise thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Apollo Hospitals Enterprise has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 2 warning signs for Apollo Hospitals Enterprise you'll probably want to know about.

While Apollo Hospitals Enterprise isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.