Indraprastha Medical (NSE:INDRAMEDCO) Is Very Good At Capital Allocation

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Indraprastha Medical's (NSE:INDRAMEDCO) returns on capital, so let's have a look.

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Return On Capital Employed (ROCE): What Is It?

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 Indraprastha Medical is:

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

0.31 = ₹2.1b ÷ (₹8.5b - ₹1.8b) (Based on the trailing twelve months to June 2025).

Therefore, Indraprastha Medical has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 12%.

View our latest analysis for Indraprastha Medical

Above you can see how the current ROCE for Indraprastha Medical 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 Indraprastha Medical for free.

How Are Returns Trending?

Indraprastha Medical is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 31%. Basically the business is earning more per dollar of capital invested and in addition to that, 117% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 21%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

In summary, it's great to see that Indraprastha Medical can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 1,212% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 2 warning signs for Indraprastha Medical you'll probably want to know about.

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