Returns On Capital Are Showing Encouraging Signs At Apollo Hospitals Enterprise (NSE:APOLLOHOSP)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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)?

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 Apollo Hospitals Enterprise:

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

0.14 = ₹14b ÷ (₹129b - ₹26b) (Based on the trailing twelve months to September 2021).

Thus, Apollo Hospitals Enterprise has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Healthcare industry average of 15%.

View 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 Does the ROCE Trend For Apollo Hospitals Enterprise Tell Us?

We like the trends that we're seeing from Apollo Hospitals Enterprise. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. 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.

Our Take On Apollo Hospitals Enterprise's ROCE

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. Since the stock has returned a staggering 381% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Apollo Hospitals Enterprise, we've discovered 3 warning signs 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.

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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