Edwards Lifesciences (NYSE:EW) Is Reinvesting To Multiply In Value

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, the ROCE of Edwards Lifesciences (NYSE:EW) looks attractive right now, so lets see what the trend of returns can tell us.

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. Analysts use this formula to calculate it for Edwards Lifesciences:

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

0.24 = US$1.8b ÷ (US$8.7b - US$1.1b) (Based on the trailing twelve months to March 2023).

Therefore, Edwards Lifesciences has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 9.1%.

Check out our latest analysis for Edwards Lifesciences

In the above chart we have measured Edwards Lifesciences' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Edwards Lifesciences here for free.

SWOT Analysis for Edwards Lifesciences

The Trend Of ROCE

Edwards Lifesciences deserves to be commended in regards to it's returns. The company has employed 68% more capital in the last five years, and the returns on that capital have remained stable at 24%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Edwards Lifesciences can keep this up, we'd be very optimistic about its future.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 13% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Edwards Lifesciences' ROCE

Edwards Lifesciences has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

While Edwards Lifesciences looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether EW 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.