Under The Bonnet, Thyrocare Technologies' (NSE:THYROCARE) Returns Look Impressive

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Thyrocare Technologies' (NSE:THYROCARE) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Thyrocare Technologies, this is the formula:

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

0.26 = ₹1.2b ÷ (₹5.2b - ₹755m) (Based on the trailing twelve months to September 2020).

So, Thyrocare Technologies has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 11%.

Check out our latest analysis for Thyrocare Technologies

Above you can see how the current ROCE for Thyrocare Technologies 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 Thyrocare Technologies here for free.

How Are Returns Trending?

The trends we've noticed at Thyrocare Technologies are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 26%. The amount of capital employed has increased too, by 28%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Thyrocare Technologies' ROCE

To sum it up, Thyrocare Technologies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 54% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Thyrocare Technologies can keep these trends up, it could have a bright future ahead.

Thyrocare Technologies does have some risks though, and we've spotted 1 warning sign for Thyrocare Technologies that you might be interested in.

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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