To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So on that note, Acadia Healthcare Company (NASDAQ:ACHC) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Acadia Healthcare Company is:

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

0.11 = US$507m ÷ (US$5.4b - US$886m) (Based on the trailing twelve months to December 2023).

Thus, Acadia Healthcare Company has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Healthcare industry.

Above you can see how the current ROCE for Acadia Healthcare Company 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 Acadia Healthcare Company .

So How Is Acadia Healthcare Company's ROCE Trending?

We're pretty happy with how the ROCE has been trending at Acadia Healthcare Company. The data shows that returns on capital have increased by 113% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 22% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Acadia Healthcare Company may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In a nutshell, we're pleased to see that Acadia Healthcare Company has been able to generate higher returns from less capital. And a remarkable 183% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Acadia Healthcare Company, we've discovered 2 warning signs that you should be aware of.

While Acadia Healthcare Company 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.