Capital Investment Trends At Dr. Lal PathLabs (NSE:LALPATHLAB) Look Strong

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So, when we ran our eye over Dr. Lal PathLabs' (NSE:LALPATHLAB) trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Dr. Lal PathLabs:

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

0.25 = ₹5.3b ÷ (₹26b - ₹4.6b) (Based on the trailing twelve months to December 2024).

Thus, Dr. Lal PathLabs has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 14%.

See our latest analysis for Dr. Lal PathLabs

In the above chart we have measured Dr. Lal PathLabs' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Dr. Lal PathLabs for free.

How Are Returns Trending?

We'd be pretty happy with returns on capital like Dr. Lal PathLabs. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 92% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

In Conclusion...

Dr. Lal PathLabs has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Dr. Lal PathLabs does have some risks though, and we've spotted 2 warning signs for Dr. Lal PathLabs that you might be interested in.

Dr. Lal PathLabs 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.