If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Andlauer Healthcare Group's (TSE:AND) trend of ROCE, we liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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 Andlauer Healthcare Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = CA$110m ÷ (CA$718m - CA$83m) (Based on the trailing twelve months to March 2023).
So, Andlauer Healthcare Group has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.5% generated by the Healthcare industry.
Check out our latest analysis for Andlauer Healthcare Group
In the above chart we have measured Andlauer Healthcare Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
How Are Returns Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 177% in that time. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On Andlauer Healthcare Group's ROCE
To sum it up, Andlauer Healthcare Group has simply been reinvesting capital steadily, at those decent rates of return. However, over the last three years, the stock has only delivered a 13% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.
On a final note, we've found 2 warning signs for Andlauer Healthcare Group that we think you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.