Under The Bonnet, Amedisys' (NASDAQ:AMED) Returns Look Impressive

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Amedisys' (NASDAQ:AMED) returns on capital, so let's have a look.

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. The formula for this calculation on Amedisys is:

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

0.21 = US$239m ÷ (US$1.6b - US$456m) (Based on the trailing twelve months to March 2021).

Thus, Amedisys has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 12%.

View our latest analysis for Amedisys

Above you can see how the current ROCE for Amedisys 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.

So How Is Amedisys' ROCE Trending?

We like the trends that we're seeing from Amedisys. The data shows that returns on capital have increased substantially over the last five years to 21%. The amount of capital employed has increased too, by 121%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Amedisys has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Amedisys can keep these trends up, it could have a bright future ahead.

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

Amedisys is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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