InvoCare (ASX:IVC) Will Be Hoping To Turn Its Returns On Capital Around

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at InvoCare (ASX:IVC), it didn't seem to tick all of these boxes.

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 InvoCare, this is the formula:

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

0.048 = AU$72m ÷ (AU$1.7b - AU$181m) (Based on the trailing twelve months to June 2022).

Therefore, InvoCare has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Consumer Services industry average of 6.8%.

See our latest analysis for InvoCare

In the above chart we have measured InvoCare'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 report for InvoCare.

So How Is InvoCare's ROCE Trending?

When we looked at the ROCE trend at InvoCare, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 4.8% from 9.4% five years ago. However it looks like InvoCare might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

To conclude, we've found that InvoCare is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 20% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think InvoCare has the makings of a multi-bagger.

If you'd like to know more about InvoCare, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

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.