Here’s What To Make Of GE HealthCare Technologies’ (NASDAQ:GEHC) Decelerating Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over GE HealthCare Technologies’ (NASDAQ:GEHC) trend of ROCE, we liked what we saw.

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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. 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)

0.13 = US$3.0b ÷ (US$33b – US$9.6b) (Based on the trailing twelve months to December 2024).

Therefore, GE HealthCare Technologies has an ROCE of 13%. On its own, that’s a standard return, however it’s much better than the 10% generated by the Medical Equipment industry.

See our latest analysis for GE HealthCare Technologies

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’d like to see what analysts are forecasting going forward, you should check out our free analyst report for GE HealthCare Technologies .

While the current returns on capital are decent, they haven’t changed much. The company has employed 33% more capital in the last four years, and the returns on that capital have remained stable at 13%. 13% 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.

To sum it up, GE HealthCare Technologies has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last year the stock has declined 21%, so the decline might provide an opening. That’s why we think it’d be worthwhile to look further into this stock given the fundamentals are appealing.

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