GE HealthCare Technologies (NASDAQ:GEHC) Has More To Do To Multiply In Value Going Forward

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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. That’s why when we briefly looked at GE HealthCare Technologies’ (NASDAQ:GEHC) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for GE HealthCare Technologies:

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

0.12 = US$2.9b ÷ (US$32b – US$8.9b) (Based on the trailing twelve months to March 2024).

Therefore, GE HealthCare Technologies has an ROCE of 12%. On its own, that’s a standard return, however it’s much better than the 10% generated by the Medical Equipment industry.

Check out our latest analysis for GE HealthCare Technologies

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In the above chart we have measured GE HealthCare Technologies’ 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 analyst report for GE HealthCare Technologies .

The Trend Of ROCE

While the current returns on capital are decent, they haven’t changed much. Over the past three years, ROCE has remained relatively flat at around 12% and the business has deployed 29% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that GE HealthCare Technologies has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On GE HealthCare Technologies’ ROCE

The main thing to remember is that GE HealthCare Technologies has proven its ability to continually reinvest at respectable rates of return. However, over the last year, the stock hasn’t provided much growth to shareholders in the way of total returns. For that reason, savvy investors might want to look further into this company in case it’s a prime investment.

One more thing, we’ve spotted 1 warning sign facing GE HealthCare Technologies that you might find interesting.

While GE HealthCare Technologies isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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