Investors Will Want Allscripts Healthcare Solutions' (NASDAQ:MDRX) Growth In ROCE To Persist

Simply Wall St
·3 min read

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Allscripts Healthcare Solutions (NASDAQ:MDRX) and its trend of ROCE, we really liked what we saw.

What Is 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. To calculate this metric for Allscripts Healthcare Solutions, this is the formula:

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

0.05 = US$72m ÷ (US$1.7b - US$253m) (Based on the trailing twelve months to September 2022).

So, Allscripts Healthcare Solutions has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Healthcare Services industry average of 7.5%.

See our latest analysis for Allscripts Healthcare Solutions

roce
roce

In the above chart we have measured Allscripts Healthcare Solutions' 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 report for Allscripts Healthcare Solutions.

The Trend Of ROCE

We're pretty happy with how the ROCE has been trending at Allscripts Healthcare Solutions. The data shows that returns on capital have increased by 118% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 55% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line

In summary, it's great to see that Allscripts Healthcare Solutions has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has only returned 31% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a separate note, we've found 2 warning signs for Allscripts Healthcare Solutions you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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