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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in dentalcorp Holdings' (TSE:DNTL) returns on capital, so let's have a look.

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 dentalcorp Holdings, this is the formula:

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

0.013 = CA$41m ÷ (CA$3.3b - CA$192m) (Based on the trailing twelve months to June 2024).

Therefore, dentalcorp Holdings has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 13%.

View our latest analysis for dentalcorp Holdings

Above you can see how the current ROCE for dentalcorp Holdings 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 analyst report for dentalcorp Holdings .

The Trend Of ROCE

We're delighted to see that dentalcorp Holdings is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses four years ago, but now it's earning 1.3% which is a sight for sore eyes. In addition to that, dentalcorp Holdings is employing 32% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From dentalcorp Holdings' ROCE

Long story short, we're delighted to see that dentalcorp Holdings' reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 51% over the last three years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we've found 1 warning sign for dentalcorp Holdings that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.