We Like These Underlying Return On Capital Trends At Allscripts Healthcare Solutions (NASDAQ:MDRX)

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Allscripts Healthcare Solutions (NASDAQ:MDRX) so let's look a bit deeper.

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 Allscripts Healthcare Solutions is:

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

0.047 = US$89m ÷ (US$2.4b - US$547m) (Based on the trailing twelve months to December 2021).

So, Allscripts Healthcare Solutions has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Healthcare Services industry average of 7.7%.

See our latest analysis for Allscripts Healthcare Solutions

Above you can see how the current ROCE for Allscripts Healthcare Solutions compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Allscripts Healthcare Solutions here for free.

So How Is Allscripts Healthcare Solutions' ROCE Trending?

It's nice to see that ROCE is headed in the right direction, even if it is still relatively low. We found that the returns on capital employed over the last five years have risen by 108%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Allscripts Healthcare Solutions appears to been achieving more with less, since the business is using 41% less capital to run its operation. Allscripts Healthcare Solutions may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In the end, Allscripts Healthcare Solutions has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a solid 67% 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 Allscripts Healthcare Solutions can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Allscripts Healthcare Solutions, we've discovered 1 warning sign that you should be aware of.

While Allscripts Healthcare Solutions 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.