Investors Should Be Encouraged By Indraprastha Medical's (NSE:INDRAMEDCO) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Indraprastha Medical (NSE:INDRAMEDCO) we really liked what we saw.

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)

0.27 = ₹1.5b ÷ (₹7.2b - ₹1.7b) (Based on the trailing twelve months to March 2024).

Therefore, Indraprastha Medical has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 15%.

Check out our latest analysis for Indraprastha Medical

Historical performance is a great place to start when researching a stock so above you can see the gauge for Indraprastha Medical's ROCE against it's prior returns. If you're interested in investigating Indraprastha Medical's past further, check out this free graph covering Indraprastha Medical's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Indraprastha Medical is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 27%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 87%. 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.

What We Can Learn From Indraprastha Medical's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Indraprastha Medical has. Since the stock has returned a staggering 650% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.