Returns At Rainbow Children's Medicare (NSE:RAINBOW) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Speaking of which, we noticed some great changes in Rainbow Children's Medicare's (NSE:RAINBOW) returns on capital, so let's have a look.

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

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. The formula for this calculation on Rainbow Children's Medicare is:

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

0.18 = ₹3.2b ÷ (₹19b - ₹1.3b) (Based on the trailing twelve months to December 2023).

So, Rainbow Children's Medicare has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 14% it's much better.

See our latest analysis for Rainbow Children's Medicare

Above you can see how the current ROCE for Rainbow Children's Medicare compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Rainbow Children's Medicare Tell Us?

Investors would be pleased with what's happening at Rainbow Children's Medicare. The data shows that returns on capital have increased substantially over the last four years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 105% 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.

The Bottom Line On Rainbow Children's Medicare's ROCE

In summary, it's great to see that Rainbow Children's Medicare 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. And with a respectable 69% 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. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

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.