Returns On Capital Are Showing Encouraging Signs At ConvaTec Group (LON:CTEC)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in ConvaTec Group's (LON:CTEC) returns on capital, so let's have a look.

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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. The formula for this calculation on ConvaTec Group is:

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

0.12 = US$381m ÷ (US$3.8b - US$479m) (Based on the trailing twelve months to June 2025).

So, ConvaTec Group has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 9.8% generated by the Medical Equipment industry.

View our latest analysis for ConvaTec Group

In the above chart we have measured ConvaTec Group'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 ConvaTec Group .

How Are Returns Trending?

ConvaTec Group's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 55% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On ConvaTec Group's ROCE

As discussed above, ConvaTec Group appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 42% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if ConvaTec Group can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing ConvaTec Group that you might find interesting.

While ConvaTec Group 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. 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.