Returns On Capital At Enhabit (NYSE:EHAB) Paint A Concerning Picture

Simply Wall St · 05/09 11:51

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. And from a first read, things don't look too good at Enhabit (NYSE:EHAB), so let's see why.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Enhabit, this is the formula:

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

0.045 = US$50m ÷ (US$1.2b - US$142m) (Based on the trailing twelve months to March 2025).

Therefore, Enhabit has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 10%.

Check out our latest analysis for Enhabit

roce
NYSE:EHAB Return on Capital Employed May 9th 2025

Above you can see how the current ROCE for Enhabit compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Enhabit for free.

How Are Returns Trending?

We are a bit anxious about the trends of ROCE at Enhabit. To be more specific, today's ROCE was 7.4% four years ago but has since fallen to 4.5%. In addition to that, Enhabit is now employing 28% less capital than it was four years ago. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. If these underlying trends continue, we wouldn't be too optimistic going forward.

In Conclusion...

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. But investors must be expecting an improvement of sorts because over the last yearthe stock has delivered a respectable 17% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Enhabit could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for EHAB on our platform quite valuable.

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