Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at IDEXX Laboratories' (NASDAQ:IDXX) ROCE trend, we were very happy with what we saw.

Understanding 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 IDEXX Laboratories is:

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

0.50 = US$1.1b ÷ (US$3.4b - US$1.1b) (Based on the trailing twelve months to June 2024).

So, IDEXX Laboratories has an ROCE of 50%. That's a fantastic return and not only that, it outpaces the average of 9.6% earned by companies in a similar industry.

See our latest analysis for IDEXX Laboratories

Above you can see how the current ROCE for IDEXX Laboratories 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 analyst report for IDEXX Laboratories .

How Are Returns Trending?

It's hard not to be impressed by IDEXX Laboratories' returns on capital. The company has employed 108% more capital in the last five years, and the returns on that capital have remained stable at 50%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

The Key Takeaway

In short, we'd argue IDEXX Laboratories has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Therefore it's no surprise that shareholders have earned a respectable 67% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

While IDEXX Laboratories looks impressive, no company is worth an infinite price. The intrinsic value infographic for IDXX helps visualize whether it 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.