Shareholders Are Optimistic That Fisher & Paykel Healthcare (NZSE:FPH) Will Multiply In Value

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Fisher & Paykel Healthcare (NZSE:FPH), we liked what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Fisher & Paykel Healthcare is:

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

0.28 = NZ$506m ÷ (NZ$2.1b - NZ$304m) (Based on the trailing twelve months to March 2022).

So, Fisher & Paykel Healthcare has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

Check out the opportunities and risks within the XX Medical Equipment industry.

In the above chart we have measured Fisher & Paykel Healthcare'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 Fisher & Paykel Healthcare here for free.

So How Is Fisher & Paykel Healthcare's ROCE Trending?

It's hard not to be impressed by Fisher & Paykel Healthcare's returns on capital. Over the past five years, ROCE has remained relatively flat at around 28% and the business has deployed 146% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

What We Can Learn From Fisher & Paykel Healthcare's ROCE

Fisher & Paykel Healthcare has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Therefore it's no surprise that shareholders have earned a respectable 56% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

While Fisher & Paykel Healthcare looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether FPH is currently trading for a fair price.

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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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.