The Trend Of High Returns At National Research (NASDAQ:NRC) Has Us Very Interested

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of National Research (NASDAQ:NRC) we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for National Research, this is the formula:

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

0.43 = US$51m ÷ (US$158m - US$40m) (Based on the trailing twelve months to December 2021).

Therefore, National Research has an ROCE of 43%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 10%.

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 The Trend Of ROCE Can Tell Us

The trends we've noticed at National Research are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 43%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 31%. So we're very much inspired by what we're seeing at National Research thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, National Research has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 126% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching National Research, you might be interested to know about the 2 warning signs that our analysis has discovered.

National Research is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.