ModivCare (NASDAQ:MODV) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Speaking of which, we noticed some great changes in ModivCare's (NASDAQ:MODV) returns on capital, so let's have a look.

What is 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 ModivCare is:

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

0.13 = US$140m ÷ (US$1.4b - US$325m) (Based on the trailing twelve months to December 2020).

Therefore, ModivCare has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Healthcare industry average of 11%.

View our latest analysis for ModivCare

Above you can see how the current ROCE for ModivCare 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 ModivCare.

What Does the ROCE Trend For ModivCare Tell Us?

We like the trends that we're seeing from ModivCare. The data shows that returns on capital have increased substantially over the last five years to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 46% more capital is being employed now too. So we're very much inspired by what we're seeing at ModivCare thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that ModivCare can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

ModivCare does have some risks though, and we've spotted 3 warning signs for ModivCare that you might be interested in.

While ModivCare isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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