Return Trends At Vijaya Diagnostic Centre (NSE:VIJAYA) Aren't Appealing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher 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.

Understanding 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. Analysts use this formula to calculate it for Vijaya Diagnostic Centre:

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

0.19 = ₹1.9b ÷ (₹11b - ₹1.2b) (Based on the trailing twelve months to September 2024).

Thus, Vijaya Diagnostic Centre has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 14% generated by the Healthcare industry.

View 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.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has employed 161% more capital in the last five years, and the returns on that capital have remained stable at 19%. 19% is a pretty standard return, and it provides some comfort knowing that Vijaya Diagnostic Centre has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Vijaya Diagnostic Centre's ROCE

The main thing to remember is that Vijaya Diagnostic Centre has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last three years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you're still interested in Vijaya Diagnostic Centre it's worth checking out our FREE intrinsic value approximation for VIJAYA to see if it's trading at an attractive price in other respects.

While Vijaya Diagnostic Centre isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.