CorVel (NASDAQ:CRVL) Is Investing Its Capital With Increasing Efficiency

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at CorVel's (NASDAQ:CRVL) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for CorVel:

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

0.33 = US$102m ÷ (US$519m - US$213m) (Based on the trailing twelve months to September 2024).

Thus, CorVel has an ROCE of 33%. That's a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.

See our latest analysis for CorVel

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 covering CorVel's past earnings, revenue and cash flow.

How Are Returns Trending?

CorVel has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 54% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a side note, CorVel's current liabilities are still rather high at 41% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

In summary, we're delighted to see that CorVel has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 1 warning sign for CorVel that we think you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.