Veradigm's (NASDAQ:MDRX) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Veradigm (NASDAQ:MDRX) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Veradigm is:

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

0.05 = US$72m ÷ (US$1.7b - US$253m) (Based on the trailing twelve months to September 2022).

Thus, Veradigm has an ROCE of 5.0%. Even though it's in line with the industry average of 5.5%, it's still a low return by itself.

Check out our latest analysis for Veradigm

In the above chart we have measured Veradigm'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 report for Veradigm.

What Does the ROCE Trend For Veradigm Tell Us?

Veradigm has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 116%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 55% less capital than it was five years ago. Veradigm may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On Veradigm's ROCE

In a nutshell, we're pleased to see that Veradigm has been able to generate higher returns from less capital. Since the stock has only returned 7.5% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

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

While Veradigm 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.