Returns On Capital Are A Standout For Narayana Hrudayalaya (NSE:NH)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. And in light of that, the trends we're seeing at Narayana Hrudayalaya's (NSE:NH) look very promising so lets take a look.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Narayana Hrudayalaya, this is the formula:

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

0.21 = ₹4.5b ÷ (₹30b - ₹7.8b) (Based on the trailing twelve months to December 2021).

Therefore, Narayana Hrudayalaya has an ROCE of 21%. In absolute terms that's a very respectable return and compared to the Healthcare industry average of 19% it's pretty much on par.

Check out our latest analysis for Narayana Hrudayalaya

Above you can see how the current ROCE for Narayana Hrudayalaya compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Narayana Hrudayalaya.

The Trend Of ROCE

We like the trends that we're seeing from Narayana Hrudayalaya. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 71% more capital is being employed now too. So we're very much inspired by what we're seeing at Narayana Hrudayalaya thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that Narayana Hrudayalaya 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 125% 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.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

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.