Yahoo Finance Returns On Capital At DENTSPLY SIRONA (NASDAQ:XRAY) Have Hit The Brakes
Did you know there are some financial metrics that can provide clues of a potential 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. Although, when we looked at DENTSPLY SIRONA (NASDAQ:XRAY), it didn't seem to tick all of these boxes.
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. To calculate this metric for DENTSPLY SIRONA, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = US$282m ÷ (US$7.1b - US$1.3b) (Based on the trailing twelve months to March 2024).
Thus, DENTSPLY SIRONA has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 10%.
Check out our latest analysis for DENTSPLY SIRONA
In the above chart we have measured DENTSPLY SIRONA's 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 DENTSPLY SIRONA .
What Can We Tell From DENTSPLY SIRONA's ROCE Trend?
Over the past five years, DENTSPLY SIRONA's ROCE has remained relatively flat while the business is using 25% less capital than before. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. In addition to that, since the ROCE doesn't scream "quality" at 4.9%, it's hard to get excited about these developments.
In Conclusion...
Overall, we're not ecstatic to see DENTSPLY SIRONA reducing the amount of capital it employs in the business. And investors appear hesitant that the trends will pick up because the stock has fallen 46% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
Like most companies, DENTSPLY SIRONA does come with some risks, and we've found 1 warning sign that you should be aware of.
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.
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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.
