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If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So while Molina Healthcare (NYSE:MOH) has a high ROCE right now, lets see what we can decipher from how returns are changing.
Our free stock report includes 1 warning sign investors should be aware of before investing in Molina Healthcare. Read for free now.
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 Molina Healthcare, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = US$1.7b ÷ (US$16b - US$8.2b) (Based on the trailing twelve months to March 2025).
So, Molina Healthcare has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 10%.
View our latest analysis for Molina Healthcare
Above you can see how the current ROCE for Molina Healthcare 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 analyst report for Molina Healthcare .
What Does the ROCE Trend For Molina Healthcare Tell Us?
When we looked at the ROCE trend at Molina Healthcare, we didn't gain much confidence. Historically returns on capital were even higher at 29%, but they have dropped over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
On a separate but related note, it's important to know that Molina Healthcare has a current liabilities to total assets ratio of 50%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.