Returns On Capital Are Showing Encouraging Signs At Acadia Healthcare Company (NASDAQ:ACHC)

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Acadia Healthcare Company (NASDAQ:ACHC) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.099 = US$460m ÷ (US$5.0b - US$378m) (Based on the trailing twelve months to March 2023).

Therefore, Acadia Healthcare Company has an ROCE of 9.9%. In absolute terms, that's a low return but it's around the Healthcare industry average of 9.5%.

See 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Acadia Healthcare Company

How Are Returns Trending?

We're pretty happy with how the ROCE has been trending at Acadia Healthcare Company. We found that the returns on capital employed over the last five years have risen by 38%. The company is now earning US$0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 25% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

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. Since the stock has returned a solid 68% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Acadia Healthcare Company can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Acadia Healthcare Company that you might find interesting.

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.