Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Ryman Healthcare (NZSE:RYM), 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. Analysts use this formula to calculate it for Ryman Healthcare:

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

0.00054 = NZ$6.8m ÷ (NZ$13b - NZ$573m) (Based on the trailing twelve months to September 2023).

Therefore, Ryman Healthcare has an ROCE of 0.05%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 0.6%.

Check out our latest analysis for Ryman Healthcare

Above you can see how the current ROCE for Ryman Healthcare compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Ryman Healthcare.

The Trend Of ROCE

On the surface, the trend of ROCE at Ryman Healthcare doesn't inspire confidence. Around five years ago the returns on capital were 0.9%, but since then they've fallen to 0.05%. 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.

Our Take On Ryman Healthcare's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Ryman Healthcare is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 44% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing: We've identified 4 warning signs with Ryman Healthcare (at least 1 which is concerning) , and understanding these would certainly be useful.