Meridian Bioscience (NASDAQ:VIVO) Looks To Prolong Its Impressive Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Meridian Bioscience's (NASDAQ:VIVO) ROCE trend, we were very happy with what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Meridian Bioscience, this is the formula:

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

0.25 = US$101m ÷ (US$450m - US$47m) (Based on the trailing twelve months to September 2021).

Thus, Meridian Bioscience has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 8.2% earned by companies in a similar industry.

View our latest analysis for Meridian Bioscience

Above you can see how the current ROCE for Meridian Bioscience compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Meridian Bioscience Tell Us?

It's hard not to be impressed by Meridian Bioscience's returns on capital. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 75% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Meridian Bioscience can keep this up, we'd be very optimistic about its future.

Our Take On Meridian Bioscience's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. Therefore it's no surprise that shareholders have earned a respectable 90% return if they held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

While Meridian Bioscience looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether VIVO is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.