Why We Like The Returns At Indraprastha Medical (NSE:INDRAMEDCO)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, the ROCE of Indraprastha Medical (NSE:INDRAMEDCO) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Indraprastha Medical, this is the formula:

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

0.26 = ₹1.1b ÷ (₹5.6b - ₹1.3b) (Based on the trailing twelve months to March 2023).

Thus, Indraprastha Medical has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View 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 want to delve into the historical earnings, revenue and cash flow of Indraprastha Medical, check out these free graphs here.

What Can We Tell From Indraprastha Medical's ROCE Trend?

Indraprastha Medical is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 26%. The amount of capital employed has increased too, by 45%. So we're very much inspired by what we're seeing at Indraprastha Medical thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Indraprastha Medical has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 204% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Indraprastha Medical can keep these trends up, it could have a bright future ahead.

Like most companies, Indraprastha Medical does come with some risks, and we've found 1 warning sign that you should be aware of.

Indraprastha Medical is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.