Acadia Healthcare Company (NASDAQ:ACHC) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Acadia Healthcare Company (NASDAQ:ACHC) so let's look a bit deeper.

Understanding 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 Acadia Healthcare Company:

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

0.096 = US$436m ÷ (US$4.9b - US$401m) (Based on the trailing twelve months to September 2022).

So, Acadia Healthcare Company has an ROCE of 9.6%. Even though it's in line with the industry average of 10%, it's still a low return by itself.

Check out our latest analysis for Acadia Healthcare Company

In the above chart we have measured Acadia Healthcare Company'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.

The Trend Of ROCE

Acadia Healthcare Company has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 32%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 24% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Acadia Healthcare Company may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take On Acadia Healthcare Company's ROCE

In a nutshell, we're pleased to see that Acadia Healthcare Company has been able to generate higher returns from less capital. And a remarkable 140% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Acadia Healthcare Company, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.