Vijaya Diagnostic Centre (NSE:VIJAYA) Hasn't Managed To Accelerate Its Returns

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Vijaya Diagnostic Centre is:

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

0.17 = ₹1.4b ÷ (₹9.3b - ₹787m) (Based on the trailing twelve months to September 2023).

So, Vijaya Diagnostic Centre has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 13% it's much better.

View our latest analysis for Vijaya Diagnostic Centre

Above you can see how the current ROCE for Vijaya Diagnostic Centre compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Vijaya Diagnostic Centre.

What Does the ROCE Trend For Vijaya Diagnostic Centre Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 119% more capital in the last four years, and the returns on that capital have remained stable at 17%. 17% 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.

The Key Takeaway

To sum it up, Vijaya Diagnostic Centre has simply been reinvesting capital steadily, at those decent rates of return. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

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

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.