What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in ISEC Healthcare's (Catalist:40T) returns on capital, so let's have a look.
Understanding 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 ISEC Healthcare, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = S$16m ÷ (S$106m - S$16m) (Based on the trailing twelve months to September 2022).
So, ISEC Healthcare has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 12% it's much better.
Check out our latest analysis for ISEC Healthcare
Historical performance is a great place to start when researching a stock so above you can see the gauge for ISEC Healthcare's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of ISEC Healthcare, check out these free graphs here.
What Does the ROCE Trend For ISEC Healthcare Tell Us?
We like the trends that we're seeing from ISEC Healthcare. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The amount of capital employed has increased too, by 40%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
What We Can Learn From ISEC Healthcare's ROCE
All in all, it's terrific to see that ISEC Healthcare is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 12% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
ISEC Healthcare does have some risks, we noticed 4 warning signs (and 2 which are a bit concerning) we think you should know about.
While ISEC Healthcare may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You'll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here