Returns On Capital At Integra LifeSciences Holdings (NASDAQ:IART) Have Stalled

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Integra LifeSciences Holdings (NASDAQ:IART) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Integra LifeSciences Holdings, this is the formula:

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

0.078 = US$265m ÷ (US$3.7b - US$356m) (Based on the trailing twelve months to September 2023).

So, Integra LifeSciences Holdings has an ROCE of 7.8%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 9.9%.

See our latest analysis for Integra LifeSciences Holdings

In the above chart we have measured Integra LifeSciences Holdings' 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 Integra LifeSciences Holdings .

What Can We Tell From Integra LifeSciences Holdings' ROCE Trend?

There hasn't been much to report for Integra LifeSciences Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Integra LifeSciences Holdings to be a multi-bagger going forward.

Our Take On Integra LifeSciences Holdings' ROCE

In a nutshell, Integra LifeSciences Holdings has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 21% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Integra LifeSciences Holdings has the makings of a multi-bagger.

One final note, you should learn about the 3 warning signs we've spotted with Integra LifeSciences Holdings (including 1 which can't be ignored) .

While Integra LifeSciences Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.