Capital returns are an asset for Laboratory Corporation of America Holdings (NYSE: LH)
Did you know that certain financial measures can provide clues about a potential multi-bagger? First, we will want to see a to recover on capital employed (ROCE) which increases and, on the other hand, a based capital employed. This shows us that it is a composing machine, capable of continually reinvesting its profits in the business and generating higher returns. So when we looked at the ROCE trend of Corporation of America Holdings Laboratory (NYSE: LH) we really liked what we saw.
Return on capital employed (ROCE): what is it?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. The formula for this calculation on Laboratory Corporation of America Holdings is:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.25 = US $ 4.4 billion ÷ (US $ 20 billion – US $ 2.7 billion) (Based on the last twelve months up to June 2021).
So, Laboratory Corporation of America Holdings has a ROCE of 25%. In absolute terms, that’s a great return and it’s even better than the healthcare industry average of 12%.
NYSE: LH Return on Capital Employed October 7, 2021
In the graph above, we measured Laboratory Corporation of America Holdings’ past ROCE against its past performance, but arguably the future is more important. If you’d like to see what analysts are forecasting for the future, you should check out our free report for Laboratory Corporation of America Holdings.
How are the returns evolving?
Investors would be delighted with what happens at Laboratory Corporation of America Holdings. Data shows that returns on capital have increased dramatically over the past five years to reach 25%. Basically the business is making more per dollar of capital invested and on top of that 37% more capital is also being used now. So we’re very inspired by what we’re seeing at Laboratory Corporation of America Holdings with its ability to reinvest capital profitably.
The key to take away
Overall, it is great to see that Laboratory Corporation of America Holdings is reaping the rewards of past investments and growing its capital base. And as the stock has performed exceptionally well over the past five years, these trends are being taken into account by investors. That being said, we still believe that promising fundamentals mean the company deserves additional due diligence.
One more thing: we have identified 2 warning signs with Laboratory Corporation of America Holdings (at least 1 which is potentially serious), and understanding them would definitely be helpful.
Laboratory Corporation of America Holdings is not the only stock generating high returns. If you want to see more, check out our free List of companies delivering high returns on equity with strong fundamentals.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.