Apollo Medical Holdings' (NASDAQ:AMEH) Returns On Capital Are Heading Higher

By
Simply Wall St
Published
May 17, 2022
NasdaqCM:AMEH
Source: Shutterstock

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 on that note, Apollo Medical Holdings (NASDAQ:AMEH) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Apollo Medical Holdings:

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

0.14 = US$105m ÷ (US$912m - US$160m) (Based on the trailing twelve months to March 2022).

Therefore, Apollo Medical Holdings has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 9.4% it's much better.

View our latest analysis for Apollo Medical Holdings

roce
NasdaqCM:AMEH Return on Capital Employed May 17th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for Apollo Medical Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Apollo Medical Holdings, check out these free graphs here.

The Trend Of ROCE

Apollo Medical Holdings is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 146% more capital is being employed now too. So we're very much inspired by what we're seeing at Apollo Medical Holdings thanks to its ability to profitably reinvest capital.

Our Take On Apollo Medical Holdings' ROCE

All in all, it's terrific to see that Apollo Medical Holdings is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 78% return over the last three years. 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 final note, we've found 3 warning signs for Apollo Medical Holdings that we think you should be aware of.

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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