RaySearch Laboratories (STO:RAY B) Shareholders Will Want The ROCE Trajectory To Continue

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. With that in mind, we've noticed some promising trends at RaySearch Laboratories (STO:RAY B) so let's look a bit deeper.

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

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 RaySearch Laboratories is:

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

0.18 = kr238m ÷ (kr2.0b - kr667m) (Based on the trailing twelve months to June 2025).

So, RaySearch Laboratories has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Healthcare Services industry.

Check out our latest analysis for RaySearch Laboratories

In the above chart we have measured RaySearch Laboratories' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for RaySearch Laboratories .

What Does the ROCE Trend For RaySearch Laboratories Tell Us?

The trends we've noticed at RaySearch Laboratories are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 41% more capital is being employed now too. 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 Key Takeaway

To sum it up, RaySearch Laboratories has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 206% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if RaySearch Laboratories can keep these trends up, it could have a bright future ahead.

While RaySearch Laboratories looks impressive, no company is worth an infinite price. The intrinsic value infographic for RAY B helps visualize whether it is currently trading for a fair price.

While RaySearch Laboratories 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.