Here's What To Make Of Krishna Institute of Medical Sciences' (NSE:KIMS) Decelerating Rates Of Return

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, the ROCE of Krishna Institute of Medical Sciences (NSE:KIMS) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Krishna Institute of Medical Sciences, this is the formula:

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

0.15 = ₹5.7b ÷ (₹46b - ₹6.6b) (Based on the trailing twelve months to December 2024).

Thus, Krishna Institute of Medical Sciences has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 14% generated by the Healthcare industry.

See our latest analysis for Krishna Institute of Medical Sciences

Above you can see how the current ROCE for Krishna Institute of Medical Sciences 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 Krishna Institute of Medical Sciences for free.

So How Is Krishna Institute of Medical Sciences' ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has employed 314% more capital in the last five years, and the returns on that capital have remained stable at 15%. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

To sum it up, Krishna Institute of Medical Sciences has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 128% return to those who've held over the last three years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching Krishna Institute of Medical Sciences, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Krishna Institute of Medical Sciences 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.