Stock Analysis

A Look Into CorVel's (NASDAQ:CRVL) Impressive Returns On Capital

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NasdaqGS:CRVL
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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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over CorVel's (NASDAQ:CRVL) trend of ROCE, we really liked what we saw.

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 CorVel is:

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

0.25 = US$69m ÷ (US$422m - US$152m) (Based on the trailing twelve months to June 2021).

Thus, CorVel has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

View our latest analysis for CorVel

roce
NasdaqGS:CRVL Return on Capital Employed September 3rd 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for CorVel's ROCE against it's prior returns. If you're interested in investigating CorVel's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For CorVel Tell Us?

CorVel deserves to be commended in regards to it's returns. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 82% in that time. Now considering ROCE is an attractive 25%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If CorVel can keep this up, we'd be very optimistic about its future.

What We Can Learn From CorVel's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has done incredibly well with a 337% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 2 warning signs for CorVel that we think you should be aware of.

CorVel is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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What are the risks and opportunities for CorVel?

CorVel Corporation provides workers’ compensation, auto, liability, and health solutions for employers, third party administrators, insurance companies, and government agencies to assist them in managing the medical costs and monitoring the quality of care associated with healthcare claims.

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Rewards

  • Earnings grew by 10.2% over the past year

Risks

  • Significant insider selling over the past 3 months

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About NasdaqGS:CRVL

CorVel

CorVel Corporation provides workers’ compensation, auto, liability, and health solutions for employers, third party administrators, insurance companies, and government agencies to assist them in managing the medical costs and monitoring the quality of care associated with healthcare claims.

Flawless balance sheet with proven track record.