Some Investors May Be Worried About Intuitive Surgical's (NASDAQ:ISRG) Returns On Capital

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Intuitive Surgical (NASDAQ:ISRG), it didn't seem to tick all of these boxes.

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. To calculate this metric for Intuitive Surgical, this is the formula:

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

0.13 = US$1.7b ÷ (US$15b - US$1.7b) (Based on the trailing twelve months to September 2023).

So, Intuitive Surgical has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Medical Equipment industry.

See our latest analysis for Intuitive Surgical

In the above chart we have measured Intuitive Surgical's 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 report for Intuitive Surgical.

What Does the ROCE Trend For Intuitive Surgical Tell Us?

On the surface, the trend of ROCE at Intuitive Surgical doesn't inspire confidence. Around five years ago the returns on capital were 19%, but since then they've fallen to 13%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Intuitive Surgical's ROCE

While returns have fallen for Intuitive Surgical in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 89% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Intuitive Surgical could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Intuitive Surgical isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.