Capital Investment Trends At Edwards Lifesciences (NYSE:EW) Look Strong

By
Simply Wall St
Published
May 22, 2022
NYSE:EW
Source: Shutterstock

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Ergo, when we looked at the ROCE trends at Edwards Lifesciences (NYSE:EW), we 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. The formula for this calculation on Edwards Lifesciences is:

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

0.22 = US$1.6b ÷ (US$8.4b - US$950m) (Based on the trailing twelve months to March 2022).

So, Edwards Lifesciences has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 8.5%.

See our latest analysis for Edwards Lifesciences

roce
NYSE:EW Return on Capital Employed May 22nd 2022

Above you can see how the current ROCE for Edwards Lifesciences compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Edwards Lifesciences here for free.

The Trend Of ROCE

In terms of Edwards Lifesciences' history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 22% and the business has deployed 78% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

Our Take On Edwards Lifesciences' 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. And the stock has done incredibly well with a 148% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

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

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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