Returns On Capital At MEDNAX (NYSE:MD) Paint An Interesting Picture

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Although, when we looked at MEDNAX (NYSE:MD), it didn't seem to tick all of these boxes.

What is 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. To calculate this metric for MEDNAX, this is the formula:

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

0.13 = US$372m ÷ (US$3.4b - US$488m) (Based on the trailing twelve months to September 2020).

Thus, MEDNAX has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Healthcare industry.

See our latest analysis for MEDNAX

Above you can see how the current ROCE for MEDNAX compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering MEDNAX here for free.

The Trend Of ROCE

Over the past five years, MEDNAX's ROCE has remained relatively flat while the business is using 29% less capital than before. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. You could assume that if this continues, the business will be smaller in a few year time, so probably not a multi-bagger.

The Bottom Line

It's a shame to see that MEDNAX is effectively shrinking in terms of its capital base. Since the stock has declined 57% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think MEDNAX has the makings of a multi-bagger.

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

While MEDNAX 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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