AMN Healthcare Services (NYSE:AMN) Is Achieving High Returns On Its Capital

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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, the ROCE of AMN Healthcare Services (NYSE:AMN) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for AMN Healthcare Services, this is the formula:

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

0.27 = US$562m ÷ (US$2.9b - US$804m) (Based on the trailing twelve months to March 2023).

Thus, AMN Healthcare Services has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 9.5%.

View our latest analysis for AMN Healthcare Services

Above you can see how the current ROCE for AMN Healthcare Services compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From AMN Healthcare Services' ROCE Trend?

AMN Healthcare Services is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 27%. The amount of capital employed has increased too, by 103%. So we're very much inspired by what we're seeing at AMN Healthcare Services thanks to its ability to profitably reinvest capital.

What We Can Learn From AMN Healthcare Services' ROCE

To sum it up, AMN Healthcare Services has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 78% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing AMN Healthcare Services we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.