Returns on Capital Paint A Bright Future For AMN Healthcare Services (NYSE:AMN)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. And in light of that, the trends we're seeing at AMN Healthcare Services' (NYSE:AMN) look very promising so lets take a look.

Understanding 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. 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)

0.32 = US$644m ÷ (US$2.9b - US$858m) (Based on the trailing twelve months to December 2022).

So, AMN Healthcare Services has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 9.6%.

Check out our latest analysis for AMN Healthcare Services

In the above chart we have measured AMN Healthcare Services' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering AMN Healthcare Services here for free.

What Does the ROCE Trend For AMN Healthcare Services Tell Us?

The trends we've noticed at AMN Healthcare Services are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 32%. Basically the business is earning more per dollar of capital invested and in addition to that, 105% more capital is being employed now too. So we're very much inspired by what we're seeing at AMN Healthcare Services thanks to its ability to profitably reinvest capital.

The Bottom Line On AMN Healthcare Services' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what AMN Healthcare Services has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 53% return over the last five years. In light of that, we think it's worth looking further into this stock because if AMN Healthcare Services can keep these trends up, it could have a bright future ahead.

If you'd like to know more about AMN Healthcare Services, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.

AMN Healthcare Services is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.