If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Integra LifeSciences Holdings (NASDAQ:IART) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Integra LifeSciences Holdings is:

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

0.082 = US$284m ÷ (US$3.8b - US$296m) (Based on the trailing twelve months to June 2022).

Therefore, Integra LifeSciences Holdings has an ROCE of 8.2%. On its own, that's a low figure but it's around the 9.3% average generated by the Medical Equipment industry.

View our latest analysis for Integra LifeSciences Holdings

Above you can see how the current ROCE for Integra LifeSciences Holdings 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 Integra LifeSciences Holdings here for free.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Integra LifeSciences Holdings. Over the past five years, ROCE has remained relatively flat at around 8.2% and the business has deployed 79% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

In summary, Integra LifeSciences Holdings has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Integra LifeSciences Holdings does have some risks, we noticed 3 warning signs (and 1 which is significant) we think you should know about.

While Integra LifeSciences Holdings 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.

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