Returns On Capital At Apollo Medical Holdings (NASDAQ:AMEH) Have Stalled

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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 ran our eye over Apollo Medical Holdings' (NASDAQ:AMEH) trend of ROCE, we liked what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Apollo Medical Holdings is:

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

0.13 = US$112m ÷ (US$1.0b - US$186m) (Based on the trailing twelve months to June 2023).

Thus, Apollo Medical Holdings has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Healthcare industry.

Check out our latest analysis for Apollo Medical Holdings

Above you can see how the current ROCE for Apollo Medical Holdings 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 Apollo Medical Holdings.

What Can We Tell From Apollo Medical Holdings' ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has employed 99% more capital in the last five years, and the returns on that capital have remained stable at 13%. 13% is a pretty standard return, and it provides some comfort knowing that Apollo Medical Holdings has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

In the end, Apollo Medical Holdings has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 64% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 2 warning signs for Apollo Medical Holdings you'll probably want to know about.

While Apollo Medical Holdings 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.