DENTSPLY SIRONA (NASDAQ:XRAY) Hasn't Managed To Accelerate Its Returns

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at DENTSPLY SIRONA (NASDAQ:XRAY) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for DENTSPLY SIRONA:

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

0.048 = US$267m ÷ (US$6.9b - US$1.3b) (Based on the trailing twelve months to June 2024).

Therefore, DENTSPLY SIRONA has an ROCE of 4.8%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 9.2%.

View our latest analysis for DENTSPLY SIRONA

In the above chart we have measured DENTSPLY SIRONA'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 analyst report for DENTSPLY SIRONA .

What Does the ROCE Trend For DENTSPLY SIRONA Tell Us?

Over the past five years, DENTSPLY SIRONA's ROCE has remained relatively flat while the business is using 28% less capital than before. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

The Bottom Line On DENTSPLY SIRONA's ROCE

It's a shame to see that DENTSPLY SIRONA is effectively shrinking in terms of its capital base. Since the stock has declined 52% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a final note, we've found 1 warning sign for DENTSPLY SIRONA 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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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.