Addus HomeCare's (NASDAQ:ADUS) Returns On Capital Are Heading Higher

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Addus HomeCare (NASDAQ:ADUS) 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. The formula for this calculation on Addus HomeCare is:

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

0.11 = US$107m ÷ (US$1.1b - US$148m) (Based on the trailing twelve months to June 2024).

So, Addus HomeCare has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Healthcare industry.

See our latest analysis for Addus HomeCare

In the above chart we have measured Addus HomeCare's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Addus HomeCare .

What The Trend Of ROCE Can Tell Us

Addus HomeCare is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 186%. So we're very much inspired by what we're seeing at Addus HomeCare thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Addus HomeCare 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 solid 56% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Addus HomeCare does come with some risks, and we've found 2 warning signs that you should be aware of.

While Addus HomeCare 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.

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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.