Stock Analysis

We Like These Underlying Return On Capital Trends At Baxter International (NYSE:BAX)

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NYSE:BAX
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So on that note, Baxter International (NYSE:BAX) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Baxter International:

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

0.11 = US$1.8b ÷ (US$19b - US$3.2b) (Based on the trailing twelve months to March 2021).

Therefore, Baxter International has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Medical Equipment industry.

See our latest analysis for Baxter International

roce
NYSE:BAX Return on Capital Employed June 29th 2021

Above you can see how the current ROCE for Baxter International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Baxter International.

What Can We Tell From Baxter International's ROCE Trend?

Baxter International is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 20% more capital is being employed now too. So we're very much inspired by what we're seeing at Baxter International thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that Baxter International can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 90% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. 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.

One more thing, we've spotted 3 warning signs facing Baxter International that you might find interesting.

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

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