Rainbow Children's Medicare (NSE:RAINBOW) Is Looking To Continue Growing Its Returns On Capital

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. 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 looked at Rainbow Children's Medicare (NSE:RAINBOW) and its trend of ROCE, we really liked what we saw.

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

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. Analysts use this formula to calculate it for Rainbow Children's Medicare:

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

0.16 = ₹3.4b ÷ (₹23b - ₹1.6b) (Based on the trailing twelve months to September 2024).

So, Rainbow Children's Medicare has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 14% generated by the Healthcare industry.

View our latest analysis for Rainbow Children's Medicare

In the above chart we have measured Rainbow Children's Medicare's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Rainbow Children's Medicare .

How Are Returns Trending?

We like the trends that we're seeing from Rainbow Children's Medicare. The data shows that returns on capital have increased substantially over the last five years to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 144% more capital is being employed now too. So we're very much inspired by what we're seeing at Rainbow Children's Medicare thanks to its ability to profitably reinvest capital.

Our Take On Rainbow Children's Medicare's ROCE

To sum it up, Rainbow Children's Medicare has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 15% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Rainbow Children's Medicare can keep these trends up, it could have a bright future ahead.

If you want to continue researching Rainbow Children's Medicare, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.