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

If you're looking for a multi-bagger, there's a few things to 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. 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 Acadia Healthcare Company (NASDAQ:ACHC) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Acadia Healthcare Company, this is the formula:

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

0.10 = US$473m ÷ (US$5.2b - US$432m) (Based on the trailing twelve months to June 2023).

Thus, Acadia Healthcare Company has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 9.5% generated by the Healthcare industry.

Check out our latest analysis for Acadia Healthcare Company

Above you can see how the current ROCE for Acadia Healthcare Company compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Acadia Healthcare Company.

What Can We Tell From Acadia Healthcare Company's ROCE Trend?

We're pretty happy with how the ROCE has been trending at Acadia Healthcare Company. The data shows that returns on capital have increased by 39% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Acadia Healthcare Company appears to been achieving more with less, since the business is using 23% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

Our Take On Acadia Healthcare Company's ROCE

In summary, it's great to see that Acadia Healthcare Company has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has returned a solid 86% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 1 warning sign for Acadia Healthcare Company you'll probably want to know about.

While Acadia Healthcare Company 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.