Here's What To Make Of Vijaya Diagnostic Centre's (NSE:VIJAYA) Decelerating Rates Of Return

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Vijaya Diagnostic Centre's (NSE:VIJAYA) ROCE trend, we were pretty happy with what we saw.

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 Vijaya Diagnostic Centre, this is the formula:

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

0.18 = ₹1.6b ÷ (₹9.8b - ₹729m) (Based on the trailing twelve months to March 2024).

Thus, Vijaya Diagnostic Centre has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 14% generated by the Healthcare industry.

See our latest analysis for Vijaya Diagnostic Centre

In the above chart we have measured Vijaya Diagnostic Centre's 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 Vijaya Diagnostic Centre for free.

So How Is Vijaya Diagnostic Centre's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 160% more capital in the last five years, and the returns on that capital have remained stable at 18%. 18% is a pretty standard return, and it provides some comfort knowing that Vijaya Diagnostic Centre has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

The main thing to remember is that Vijaya Diagnostic Centre has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 64% return if they held over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Vijaya Diagnostic Centre could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for VIJAYA on our platform quite valuable.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com