The Trends At Integral Diagnostics (ASX:IDX) That You Should Know About

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Integral Diagnostics (ASX:IDX) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. Analysts use this formula to calculate it for Integral Diagnostics:

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

0.087 = AU$50m ÷ (AU$656m - AU$77m) (Based on the trailing twelve months to December 2020).

Thus, Integral Diagnostics has an ROCE of 8.7%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 11%.

See our latest analysis for Integral Diagnostics

In the above chart we have measured Integral Diagnostics' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Integral Diagnostics' ROCE Trending?

When we looked at the ROCE trend at Integral Diagnostics, we didn't gain much confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 8.7%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Integral Diagnostics' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Integral Diagnostics is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 294% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a separate note, we've found 3 warning signs for Integral Diagnostics you'll probably want to know about.

While Integral Diagnostics may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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