Return Trends At Intuitive Surgical (NASDAQ:ISRG) Aren't Appealing

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. That's why when we briefly looked at Intuitive Surgical's (NASDAQ:ISRG) ROCE trend, we were pretty happy with what we saw.

Understanding 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 Intuitive Surgical:

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

0.14 = US$1.6b ÷ (US$12b - US$1.0b) (Based on the trailing twelve months to June 2021).

Thus, Intuitive Surgical has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 8.7% it's much better.

Check out our latest analysis for Intuitive Surgical

Above you can see how the current ROCE for Intuitive Surgical compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Intuitive Surgical here for free.

What Can We Tell From Intuitive Surgical's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 113% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Intuitive Surgical has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Intuitive Surgical's ROCE

In the end, Intuitive Surgical has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 357% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

While Intuitive Surgical doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.
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