National Research (NASDAQ:NRC) Knows How To Allocate Capital Effectively

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of National Research (NASDAQ:NRC) 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. Analysts use this formula to calculate it for National Research:

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

0.40 = US$44m ÷ (US$147m - US$37m) (Based on the trailing twelve months to March 2021).

Thus, National Research has an ROCE of 40%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 11%.

See our latest analysis for National Research

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating National Research's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From National Research's ROCE Trend?

We like the trends that we're seeing from National Research. Over the last five years, returns on capital employed have risen substantially to 40%. The amount of capital employed has increased too, by 28%. So we're very much inspired by what we're seeing at National Research thanks to its ability to profitably reinvest capital.

The Bottom Line On National Research's ROCE

All in all, it's terrific to see that National Research is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 297% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 2 warning signs for National Research you'll probably want to know about.

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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